AP Photo/Lynne Sladky, File
On Monday, I wrote about the bankruptcy filing by United Sporting Cos (USC), the parent company of Ellet Brothers. The firearm distributor blamed the filing on the excess stock that was the result of reduced demand following the election of President Donald Trump. They blamed the “Trump Slump” for insufficient sales, at least in part.
However, a lawsuit has been filed that alleges some of the biggest issues at the company had nothing to do with who won the 2016 presidential election.
A longtime Chapin-based firearms distributor filed for bankruptcy Monday after a lawsuit claimed the company’s corporate parent forced it to funnel hundreds of millions in loans into the pockets of executives and investors.
The lawsuit, filed in Lexington County on May 23, says Ellett Brothers went from being a homegrown sporting and hunting goods giant raking in $750 million in annual revenue to a financially collapsed company.
Problems began a few years after Ellett Brothers was acquired by Wellspring Capital Management, a Delaware corporation, and placed under the control of Wellspring Capital Partners IV in 2008, according to the lawsuit. Wellspring formed SportCo and United Sporting to be parents to Ellett Brothers and its subsidiaries.
In September 2012, Ellett Brothers and its subsidiaries received a $280 million loan from Prospect Capital Corporation and other lenders, including Bank of America, Wells Fargo, Regions Bank and Summit Partners Credit Fund. Prospect gave $100 million of the total loan, according to the lawsuit.
Part of the loan was used to pay down existing debts, according to the lawsuit. But the remaining $134 million was redirected to Wellspring and its partnerships, executives, investors and shareholders. Ellett Brothers received no investment from the deal.
In 2013, a second loan was issued and a similar transfer of cash occurred, at the direction of Wellspring executives, according to the complaint. Of the $60 million Prospect loaned to Ellett Brothers, nearly $55 million was delivered, again, to people outside the business whose “primary concern was to keep the enterprise ostensibly afloat for as long as possible to continue collection fees,” the lawsuit says.
A lot is going on, and I don’t want to quote the entire article. Suffice it to say that there are a lot of problems within USC, the kind that bankruptcy probably won’t solve.
From here, it looks like the company was being looted, with the goal potentially always being bankruptcy. Then again, I’m feeling a little cynical this morning.
Either way, it certainly sounds like there’s a lot more to this matter than a simple case of declining firearm sales. That makes sense, though. While plenty of manufacturers are struggling during the downturn in the firearm industry, few are needing to resort to bankruptcy. There’s usually another reason.
Now, those other reasons could well be benign. Loans taken to build new manufacturing lines or to conduct capital improvements on warehouses or even to beef up security at those warehouses all can be legitimate expenses that may require loans. Then a downturn may make repayment of those loans a struggle. I get that.
But if someone was using Ellet Brothers as a way to funnel money elsewhere within the holding company, then that’s a problem, and I hope those parties get hit hard in this lawsuit. We’ll have to wait and see.