Remington Bonds Crater Into Distress As 'Trump Slump' In Gun Sales Raises Refinancing Concerns
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Following the spate of mass shootings over the last several months, it has become clear that Congress and the Trump Administration have no plans to enact new gun control regulations. That might be welcome news for gun enthusiasts, but it’s actually a bad omen for gun manufacturers.
Indeed, this morning, Remington Outdoor disclosed a dramatic plunge in earnings for the third quarter of 2017. Adjusted EBITDA fell by 78% year-over-year to $7.4 million, on net sales of $154 million, down 30%.
The “Trump Slump” in gun sales has had a punishing effect on the stocks of US-based firearms manufacturers. Publicly-traded Sturm Ruger & Co and American Outdoor Brands have shed 27% and 43% in market capitalization, respectively, since mid-June, as consumer urgency to stockpile has receded under the unified Republican-led administration and Congress.
But the stakes are arguably higher for Remington, since its highly levered balance sheet means it has a much smaller cash flow buffer to help absorb declines. Remington, also known as Freedom Group and taken private by Cerberus Capital Management in 2007 for $370 million, is likely to burn cash this year thanks to its high interest costs. That in turn will make it difficult to refinance its debtload, which has ballooned to $964 million and is scheduled to mature across 2019 and 2020.
Trading levels in Remington’s capital structure are collapsing today. The company’s $552 million first lien term loan due 2019 is currently bid around 66 cents on the dollar, down from 72 cents yesterday, according to Markit. Meanwhile, the company’s illiquid $250 million 7.875% senior secured third lien notes due 2020 traded hands in small size at 42 cents on the dollar, compared to 50 cents last week.
The “real” market for the notes is likely much lower, as bids are currently coming in for the notes as low as 20 cents, a trader said.
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