Remington is struggling as gun sales slow under Trump
Firearm makers gambled demand would rise after election of ‘true friend’
NEW YORK— Steve Feinberg’s investment in Remington Outdoor Co. is misfiring again.
The billionaire’s buyout fund, Cerberus Capital Management, controls gunmaker Remington, which ironically has struggled ever since Donald Trump, the gun industry’s selfproclaimed “true friend,” was elected president. That wiped out fears of a Hillary Clinton crackdown on firearms, tempered gun sales and drained as much as 36 per cent from the value of Remington’s bonds. With almost $1 billion (U.S.) of debt maturing over the next three years, the company has warned it might need to restructure if it can’t refinance at reasonable terms.
It’s the latest headache for Cerberus in its decade-long relationship with the oldest U.S. weapons manufacturer, whose setbacks have included an aborted public offering and an investor revolt after one of its rifles was used in the Sandy Hook Elementary School mass shooting. More recently, the post-election sales slump has left retailers glutted with too many unsold guns and manufacturers with too much capacity.
This also left Remington unsure if it will be able to roll over its $928 million of debts. Its bonds, due in 2020, trade at distressed levels, with yields well above 30 per cent. Moody’s Investors Service says the capital structure needs an overhaul. It’s a conundrum for Remington and Feinberg, who counts Donald Trump Jr. among his friends and has advised the president’s administration.
“The industry right now is suffering because they built their infrastructure up under the premise that you’d have increased demand,” said Kevin Cassidy, a Moody’s analyst who downgraded Remington deeper into junk on June 28.
“When things changed, they had to rightsize their business essentially overnight.”
Representatives for Madison, N.C.based Remington didn’t answer requests for comment, and Cerberus declined to comment. There’s no imminent financial crunch, according to Remington’s April quarterly report, with management expecting to meet obligations in the near term with its cash, credit line and operating cash flow.
Cerberus, with about $30 billion in assets, bought Remington in 2007 for $118 million and assumed $252 million of debt. The firm has acquired more than a dozen brands including Marlin, DPMS Panther Arms and Barnes Bullets with commercial, military and police customers.
But Remington had to call off plans for an initial public offering in 2011, when it was known as Freedom Group Inc., after failing to fill its chief executive job amid a weak gun market.
The next year brought more trouble when a Remington Bushmaster rifle was used in the school massacre in Newtown, Conn.
That led some of the firm’s biggest investors, including the California State Teachers’ Retirement System, to pressure Cerberus to sell the business or buy them out. Remington wasn’t held responsible by authorities for the shooting, but Cerberus agreed to the buyout request after struggling to find advisers for a sale. Remington issued debt to buy back some shares from Cerberus, but Feinberg’s firm still owned a 93-percent stake at year-end. Trump supports Second Amendment rights and told the National Rifle Association it has a “true friend” in the White House. Counterintuitively, that’s hurting sales. Background checks — a key indicator of future gun sales — fell 26 per cent from November to June, according to data from the National Instant Criminal Background Check System. They more than doubled to 27.5 million last year from 2008, the year before Barack Obama took office. That was when Shane Thomas, a retail sales manager at Birmingham Pistol Wholesale in Alabama, decid- ed to reopen his family’s gun shop. “It didn’t take long for us to go from zero to a profitable business,” Thomas said.
“Now that we have a Republican in office, I’ve seen it dropping,” Thomas said. Since the election, “we’ve probably dropped 15 per cent, and we’re lucky — I’m sure other places have lost a lot more sales.”