The United Auto Workers union is asking the state to give financial support to Colt, which is enmeshed in a bankruptcy case and feuding with its largest creditors.
A package of aid from the state Department of Economic and Community Development would mark the fourth time in 25 years that the state stepped in to preserve jobs at the iconic Connecticut gun manufacturer. Colt Defense LLC, as the company is now known, has about half the local workforce it had when the bailouts began.
Mike Holmes, shop chairman at UAW Local 376, said that so far, DECD has been receptive to the idea of supporting Colt and keeping its 610 jobs in West Hartford. Close to 500 workers are represented by the UAW.
“We believe it’s in the interest of all parties to come together to preserve and protect this legendary company,” he said.
Colt management declined to comment on any communication it has had with DECD. But Holmes, who is on Colt’s board, said that the company is giving financial information to state economic development officials.
Mike Nicholson, a lawyer representing the UAW in the bankruptcy case, said that Connecticut is starting to get involved with Colt again.
“We’ve had discussions with [DECD Commissioner] Catherine Smith, how the state might be involved,” he said. He said it was too early in the process to know whether the state might give a grant or a loan.
Smith declined to comment on what DECD is considering for Colt.
“We never talk about individual situations,” she said. “We just don’t comment on specific deals until they’re fully announced.”
In June, Colt Holding Company filed for bankruptcy protection, citing $269 million in unsecured debt to its 30 largest creditors. The largest creditor by far is the group of bondholders who loaned the company $250 million in 2009.
Complicating any potential deal with the state is a dispute in the bankruptcy, in which the bondholders are accusing the owners of taking too much money out of the company.
Colt clashed with lawmakers and Gov. Dannel P. Malloy in 2013, when the state banned the sale of most semiautomatic rifles, including civilian versions of the AR-15, which Colt manufactures. Colt brought 10 busloads of employees to the Capitol to oppose the bill and CEO Dennis Veilleux said it would lead customers to pressure the company to exit Connecticut.
State aid almost never goes to companies in bankruptcy or as they exit from bankruptcy, but Colt itself has been a prominent exception. The Connecticut Development Authority provided $2 million in loan guarantees while Colt was in bankruptcy in 1992 and, in 1994, the CDA contributed $10 million to the Colt reorganization plan as it exited bankruptcy, with the promise that the company would stay in the state for 10 years.
When Colt came out of bankruptcy in 1994, the current owners, now called Sciens Capital Management, bought the manufacturer for $27 million.
Even before that bankruptcy, in 1990, the state had a prominent part in saving Colt, which then had operations under the famous onion dome in Hartford. As part of a deal to end a four-year strike that had started in 1986, the state pension fund contributed $25 million for a 47 percent stake in the company.
The UAW also took a partial ownership stake, as did private investors. At the time, the company had 1,200 employees, in both West Hartford and Hartford. It left the historic Hartford armory in 1994.
The state ended up losing all but $4.3 million of the $25 million. It also wrote off the $2 million during bankruptcy and $500,000 loaned just before the bankruptcy.
Those losses loom large for a Republican lawmaker who serves on the State Bond Commission, which approves borrowing for large economic deals.
Sen. L. Scott Frantz, R-Greenwich, said he believed that the numerous past bailouts of Colt did not provide a good return on investment — although he said it was possible that if state intervention kept the company from closing, it was justifiable on that count.
“I would be raising an eyebrow over any potential funding of Colt, period,” said Frantz, the ranking Republican on the legislature’s finance, revenue and bonding committee. “I don’t think it would be a good investment for the state of Connecticut.
“One of the great lessons in business, of course, is: Don’t throw good money after bad.”
But an equally large concern for him is whether another state bailout would be rewarding reckless economic decisions by the owners.
According to both the largest creditors and reports from Bloomberg News, Sciens took out so much money from Colt in the mid-2000s that it damaged the company’s financial health.
Bloomberg reported in 2014 that the private equity group “loaded the company with debt while taking out cash in the form of distributions and advisory fees.” It cited federal filings showing that the group took out more than $200 million between 2005 and 2007.
Frantz said, “We have to be extremely careful we are putting money into the right corporate situation.”
Could Colt be the right corporate situation? “I have grave doubts,” he said.
The bondholders have objected to Sciens’ plan to continue to control the company after it exits from bankruptcy, and have begun to contribute to funding the company’s operations as it works through the process to have a stronger say in how debts are settled.
In bankruptcy court last month, an attorney for the bondholders said they have evidence that Sciens took out so much cash that it was damaging to the company, The Wall Street Journal reported. Sciens’ attorney said that’s not true.
Last week, the bondholders asked the bankruptcy judge to compel Sciens and the West Hartford factory’s landlord to provide documents about the two parties’ relationships and decision-making. Sciens is a 30 percent partner in the property.
The bondholders said the landlord’s attorney is hesitating to renew the lease past October if Sciens is no longer controlling the company after it exits bankruptcy.
On Tuesday, the landlord responded, calling the request for documents disingenuous. “The Landlord has never refused to extend the Lease. Not at any point, not to any party,” the court filing said. “In this particular instance, the Landlord has not yet made any decision regarding an extension to the Lease because it has not received basic information about to whom it would be leasing and what the financial condition of the lessee would be. … To this date, no one has given the Landlord a definitive answer about who the owners of the reorganized [Colt] would be.”
