An article about Colt's finances

The merger between the gun maker whose Colt revolvers were wielded by Doc Holliday to Theodore Roosevelt and its former military division, which supplies the Army's M4 rifle, is failing to convince bondholders that it will generate enough cash to repay $250 million in debt.

While military supplier Colt Defense's 8.75 percent notes due November 2017 gained 5.5 cents after the West Hartford, Conn.-based company said on July 15 that it spent about $60.5 million to buy the consumer-oriented Colt's Manufacturing Co., the debt trades at 80.75 cents on the dollar to yield 14.96 percent, almost 14 percentage points more than similar-maturity Treasuries. That's about 4 percentage points higher than the threshold for bonds considered distressed.

Adding a $50 million term loan to help finance the purchase will hurt liquidity by boosting interest expense even as the deal gives Colt Defense access to a broader distribution network for its firearms, according to Standard & Poor's. Colt Defense, which forecasts a flat-to-declining U.S. defense budget for the "foreseeable future" as the military winds down foreign missions, would need more than 70 years to build up enough money to pay off the bonds at its current pace of cash generation.

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