Colt Defense 8.75% senior unsecured notes have traded at all-time lows on Friday following the company’s loss of a long-term contract and a subsequent announcement by Moody’s that it will place the gun maker on review for a downgrade, according to trade data.

The $250 million issue of CCC+/Caa1 notes, placed in November 2009 via J.P. Morgan and Morgan Stanley as part of a loan-and-bond refinancing effort, traded as low as 57 Friday and Thursday, according to trade data, down from the mid-60s at the start of the month.

The Army Contracting Command gave a lucrative contract worth $84 million for producing up to 120,000 M4/M4A1 carbine rifles to Remington in Ilion, N.Y. The Moody’s report described the loss as a “significant setback,” as Colt had historically been the sole supplier of M4s to the U.S. Army, its largest customer. However, Colt has become less dependent on sales to the U.S. government, with such sales accounting for 33% of fiscal 2011 revenue, versus 60% in fiscal 2009, Moody’s noted.

Colt Defense has turned around to file a protest of that award with Government Accountability Office, according to the GAO.

Colt Defense was split off from 160-year-old Colt’s Manufacturing in 2002. Colt’s Manufacturing now serves the civilian market, while Colt Defense serves the law-enforcement, military, and private-security markets worldwide. The company is controlled by Sciens Capital Management, and Blackstone Group joined with a $30 million equity stake alongside a dividend recapitalization in 2007. – Max Frumes