Remington bankruptcy shows depth of US gun slump (Update)
The US gunmaker Remington filed for bankruptcy protection on Sunday, a day after marchers swarmed US cities nationwide to call for greater regulation of firearms.
But the hard times now facing gun companies began in November 2016.
That was when Donald Trump's surprise election victory in the US led to a sudden drop in US firearms demand, which had been robust until then as gun owners stockpiled in anticipation of a Hillary Clinton presidency.
With Trump an avowed gun rights supporter with boasts of warm ties to the National Rifle Association, in office, gun enthusiasts slowed purchases, causing a glut. Massive discounting and deep layoffs at firearms companies soon followed.
Gunmakers now face intensifying public scrutiny following the February 14 Florida school shooting that left 17 dead, sparking Saturday's "March for our Lives."
Retailers such as Dick's Sporting Goods and Walmart have moved to to distance themselves from the extreme end of the political spectrum on gun rights—with aversion spreading to the financial sector as well.
But the immediate problem facing Remington and other firearms companies is the expectation for "new, lower levels of consumer firearm demand," American Outdoor Brands chief executive James Debney said earlier this month.
He said "flattish" firearms sales could persist for another 12-18 months.
Headquartered in North Carolina, Remington dates to 1816, making it one of the nation's oldest gunmakers.
Besides guns, it makes bullets and barrel equipment, employing 2,700 people at seven facilities in the US and exporting to 52 countries, chief financial officer Stephen Jackson said in a filing in US Bankruptcy Court in Delaware.
Remington experienced a "significant decline in sales" over the last year when demand "ultimately did not materialize" after the company boosted output in 2016, Jackson said.
Operating profits in 2017 dwindled to just $33.6 million, less than one third the level just two years earlier, Jackson said.
Some financers say no
On February 12, two days before the Parkland shooting, Remington signaled plans to file for bankruptcy protection, saying it reached a preliminary agreement with its creditors to allow the company to operate while it reorganizes.
Remington however encountered difficulty with efforts to expand its pool of financers for the period after the bankruptcy filing, according to Ari Lefkovits, managing partner of Lazard Freres, which was hired by Remington.
"Lazard approached over 30 potential funding sources to provide such financing," Lefkovitz said. "The vast majority of lenders contacted, however, indicated that they were reluctant to provide financing to firearms manufacturers."
Remington instead turned to its existing lenders, including JPMorgan Chase and Franklin Advisers, Lefkovits said. Several others with long relationships with Remington, including Bank of America and Wells Fargo, are also providing financing during the propcess.
The reorganization, considered a "prepackaged" bankruptcy because the major parties have already reached agreement, would eliminate $775 million in debt and shift to creditors control of new equity.
Besides the financial incentive to stay in the transaction, banks involved in the bankruptcy might face legal liabilities if they walked away now.
Bank of America and JPMorgan declined to comment. Wells Fargo did not immediately respond to request for comment.
The bankruptcy comes amid intensifying pressure on major companies to take a stand on guns.
Last week, Citigroup became the first major US bank to unveil significant new policies on guns, announcing it would require retail clients to bar sales to those under 21 or to people who have not passed a background check.
Citigroup said it would also start "due diligence" among its gun manufacturing clients to understand their operations and whether they are in line with "common sense" gun policy.
Asset manager BlackRock, the largest shareholder in several leading gun stocks, has also signaled plans to intensify scrutiny.
It said in a March 2 notice that it was taking steps to reach out to clients who do not want to hold gun stocks and stepping up engagement with firearms executives on their products.
© 2018 AFP