How to Bankrupt Gun Manufacturers


Cerberus Capital Management tried for years to enter the American gun industry. Then, first in 2006, it purchased Bushmaster, well-known for its quality AR-15 type rifles, which were made in Wyndham, Maine, for $70 million dollars. Bushmaster back then, was one of the ABCs of AR-15 rifle makers, Armalite, Bushmaster and Colt. Everyone in Windham was laid off, 73 workers,and the brand moved to Ilion, NY, where CCM paid $118 million in cash for Remington, America's oldest gun maker, and assumed the company’s debt. Other acquisitions followed, until by 2013, 18 gun related businesses were rolled up together under Cerberus’s roof.


Eventually, one of CCM's jobs was to oversee the layoffs. In Ilion, where Remington had operated for 191 years on the same site where unfinished weapons traveled from one brick building to the next, 231 people lost their jobs. There were 160 layoffs at Montana Rifleman in Kalispell, Montana. The Advanced Armament Corporation, a manufacturer of suppressors and silencers, closed its plant in Georgia. 68 people were let go from AR15 manufacturer D.P.M.S. Panther Arms in St. Cloud, Minnesota. 65 from 1911 .45 maker PARA USA, in Pineville, N.C. And the list goes on. But I digressed. Let's go back to Remington.


In order to buy Remington, Cerberus, as most private-equity firms would, created a new entity, a holding company. Instead of Cerberus buying a gun company, Cerberus put money into the holding company, and the holding company bought Remington. The entities were related but — and this was crucial — each could borrow money independently. In 2010, Cerberus had the holding company borrow $225 million from an undisclosed group of lenders, most likely hedge funds such as those of Soros and Bloomberg.


Because this loan was risky — the lenders would be paid only if Remington made a lot of money or was sold — the holding company offered a generous interest rate of around 11 percent, much higher than a typical corporate loan. When the interest payments were due, the holding company paid them not in cash but with paid-in-kind notes, that is, with more debt. These are known as PIK notes.


The holding company now had $225 million in borrowed cash. Cerberus, meanwhile, owned most of the shares of the holding company’s stock, basically slips of paper they acquired when they created the holding company. The handoff happened next: The holding company spent most of the $225 million buying back its own stock, effectively transferring all the borrowed cash to Cerberus. Meanwhile Remington continued rolling along as though nothing had happened, because Remington itself was not responsible for the holding company’s debt. Remington was just an “operating company” that the holding company owned, something that allowed the holding company to borrow money, the way you would take a necklace to a pawnshop.


These were garden-variety maneuvers in a private-equity buyout. In the trade, this is called “financial engineering.” People get degrees in it. In April 2012, Cerberus did something fateful, which probably seemed smart at the time. It had Remington borrow hundreds of millions of dollars and use it to buy the holding company’s debt, effectively transferring responsibility for the principal and the interest payments from them onto Remington. America’s oldest gun company now owed the money that Cerberus had used to pay itself back for having bought the company in the first place! But there was a catch.


Because the operating company borrowed the money with a normal loan — and not with PIK notes — interest payments were required in cash. Suddenly Remington was carrying hundreds of millions of dollars in debt that, if it could not be paid, which would cause the business to go bankrupt. By the time the new proposed factory opened in Huntsville, the various players stood in vastly different positions. The private-equity firm had made back its initial investment and was playing with house money. Remington now owed hundreds of millions that it hadn’t borrowed. And its workers, urgently, had to make a lot of guns. Guns going nowhere.


Cerberus has a habit of hiring power brokers from the United States government, many of them prominent Republicans. The former

vice- president, Dan Quayle became chairman of Cerberus Global Investments in 1999; the former Treasury secretary John W. Snow joined Cerberus seven years later. The Republican donor William Richter, is a founder. Since May 2018, Feinberg, has been a member of Trump’s Intelligence Advisory Board, an independent entity created to advise the president on national-security matters.


But if Obama was the best gun salesman in our history, Trump was to prove to be the worst gun salesman of all time. Gun makers had already ramped up production ahead of Hillary Clinton’s advertised landslide victory, and as a result in 2017, the market was choked with surplus product. Trump’s victory and his loud 2nd Amendment stand doused any hope of a panic buy. And the gun industry was devastated.


Then came ChiCom-19 and everything came to a screeching halt. And today everything is overpriced or impossible to find and aggressive anti-gun legislation is flying out of the House of Representatives at a staggering pace. And that folks, is how it’s done.That's how you kill the gun industry.

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