Remington Outdoor Co. has only been in bankruptcy for a month, but creditors are already planning an out.
The U.S. firearms and ammunition juggernaut will likely go up for sale directly following its bankruptcy, according to people with knowledge of the situation. Certain stakeholders, some of whom haven’t been publicly identified, have already started putting out feelers for potential strategic buyers, these people said.
Rather than hold the collection of 13 brands that includes a 200-year-old rifle maker, ammunition manufacturers, silencer companies and traditional firearms manufacturers, the lenders will be trying to offload at a particularly fraught time. In the two months since a mass shooting at a Florida high school, the American gun business and its allies have faced increased scrutiny, nationwide boycotts and even new new firearms regulations from U.S. Congress. Despite the turmoil, gun sales are up, particularly in the long-gun category.
While private-equity firms and hedge funds may typically be expected to play vulture over the remains of a bankrupt entity, Remington is more likely to go to a competing gun company that wouldn’t face the same risks to its reputation as a financial firm would.
Remington has already piqued the interest of a potential buyer in the industry. “We're watching that closely. I mean, Remington is a great company, it's been around since 1816. They got some great brands and great products,” said Christopher John Killoy, president of Sturm, Ruger & Co. (RGR.N), during the company’s last earnings call in February. “We're going to monitor and see if there may be some opportunities down the road.”
The company has some prized parts. “Remington certainly has enviable and well-established brands in its portfolio, said Rommel T. Dionisio, managing director of equity research at Aegis Capital Corp. He cited the company’s namesake long guns, along with Bushmaster rifles and AAC silencers, as the strongest brands. But litigation over alleged trigger defects in the Remington Model 700, which have been blamed for accidental discharges, is expected to roll through the bankruptcy and could amount to a US$500-million challenge for a new owner.
The two largest stakeholders are JP Morgan Chase & Co. (JPM.N) and Franklin Templeton Investments Corp. The group of Remington’s creditors, some of whom haven’t been publicly identified, include: Hillmark Capital LLC, JMP Credit Advisors LLC, Voya Investment Management Company, Sound Point Capital, Whitebox Advisors LLC, H.I.G. Whitehouse Capital LLC and Highland Capital Management, according to court documents. None of the creditors commented on the matter.
Cerberus Capital Management acquired Remington in 2007 and saddled it with nearly US$1 billion in debt during the decade that followed. The firm, run by private-equity mogul and GOP super-donor Stephen Feinberg, announced the bankruptcy plan in February and formally filed in March. The Chapter 11 filing includes a plan to eliminate US$620 million in debt before handing the company to its lenders. (Cerberus and Remington did not respond to requests for comment.)
Cerberus was hoping for a speedy exit from bankruptcy, but recent court records point to a potentially contentious Chapter 11 process. Lender requests for more than 8,400 documents related to Remington’s operations, according to a recent court filing, rattled the nerves of its private-equity owner. Cerberus, in turn, withdrew some staff tasked with assisting the entity through bankruptcy.
“Unfortunately, the parties thus far have not been able to resolve any potential issues, leaving Cerberus to conclude that the lenders are committed to embarking on a time-consuming and expensive litigation path,” lawyers for Cerberus stated in the April 13 document seeking to terminate an arrangement that was part of the original restructuring deal.
The nature of the lenders’ requests was not disclosed in the records, though litigation is common in bankruptcies as creditors work to maximize their recoveries. Regardless of what creditors are able to claw back during the bankruptcy, the value of their asset will be impacted by a political and social climate that is out of their control at the time of a potential sale.
On Friday, meanwhile, thousands of students across the U.S. protested gun violence, the second such rally in a month. But the revived activism seeking to impose new limits on firearms could work in Remington’s favour: Gun sales rose in March for the second consecutive month, and analysts declared that fear-based gun buying has returned to a market calmed by the election of U.S. President Donald Trump.
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