In the long-running serial of financial peril that is the Colt Defense story, a midnight discovery by commenter Daniel E. Watters:
|I just happened to take a look at one of Colt’s patents and noticed that it has been assigned to Cortland Capital, the folks who bailed them out in February. Further research shows that this is true across the board for the active patents and patent applications.https://www.google.com/search?tbm=pts&hl=en&q=%22CORTLAND+CAPITAL%22#hl=en&tbs=sbd:1&tbm=pts&q=%22CORTLAND+CAPITAL%22+colt|
Daniel is best known for his indispensable 5.56 timeline at the Gun Zone, but he has been a persistent researcher of the Colt financial drama. In this case, he is right on. Colt’s patents are gone, they technically are no longer property of Colt Defense LLC; and they won’t be, unless Colt repays the loan. And this is nothing new: since 2006 Colt has been mortgaging
We’re not referring, of course, to Colt’s historic patents, like this 1836 revolver patent, which have long since lapsed.
We’re talking about its current patents, like this frequently-cited 2005 modular firearm patent. As that link shows, it, and its brethren, have at one time or another been the property of a who’s who of New York banking interests: Bank of America, Wells Fargo, JP Morgan Chase. And in recent years, less-established banks, the sort that make riskier loans, culminating a couple of years ago with Cortland Capital, whose latest loan of $33M came with a 10% interest tab.
This interesting 2010 patent for a mechanically-selectable, electrically-adjustable rate of fire for an AR-15 type weapon was first assigned to Cortland in 2013. (The logic chart below seems to be missing something, to wit, a FIRE step, but that’s what’s in the patent).
Other patents show similar assignments. In the next set of loans after their granting, they’ve been used as collateral.
It’s unknown if the current patents are producing any royalty income for Colt. If so, it doesn’t show up on their SEC forms.
Of course, the finance companies do not want to exploit the patents; they just want security for their loans, and winding up holding the patents in lieu of principal and interest is not their preferred outcome. They’re in the money racket, not the gun racket.
But if Colt defaults on its Cortland loan, Cortland winds up holding a bag of patents (and any other security Colt pledged) rather than its money. In such as case, they might be able to charge Colt royalties for using these inventions of its employees and former employees. If Colt production continues. Or resumes. Most likely, they would try to sell the patents.
The patents are one of the true stores of value in Colt Defense LLC, but they have been mortgaged as part of the financial
looting monetization of the company that the last several rounds of owners have undertaken. The company’s trademarks are also a highly valuable asset. One wonders if they, too, have been mortgaged.
When the $33M loan was announced in February, Colt only described it as “secured,” not indicating that it was secured with Colt’s patents, but the evidence was always there in the financial section of the US Patent and Trademark Office records, just waiting for Daniel to find it.
We still consider a resolution of the financial crisis on either of the terms preferred by the Colt managers extremely unlikely. (Those terms are a refinancing of defaulted bonds, or a prepackaged bankruptcy that accrues primarily to the benefit of the hedge-fund owners and managers). That means that what is likely is probably a non-prepack bankruptcy.
It seems unlikely that the firm could make a credible proposal for continuing in Chapter 11 reorganization, but it is possible. A more likely outcome is a Chapter 7 liquidation, which may result in a court-ordered sale of the entire assets, or a cannibalization of the company.
The clock is ticking on this 150-year-old company, and on firearms manufacture in Hartford (any new owner will have small reason to retain the overpriced workforce, expensive and underproductive facility, and hostile political/economic business climate that come with the present location).