38 Studios owed EDC money on May 1; did Schilling firm pay?
May 15th, 2012 at 3:01 pm by Ted Nesi under Nesi's Notes
Update: House Speaker Gordon Fox just confirmed to WPRI 12′s Sean Daly that 38 Studios defaulted on May 1 when it failed to make the $1.125 million payment to the EDC that I discussed below. More to come.
Update #2: Sean Daly and I have posted a full report on WPRI.com.
Curt Schilling’s video-game company 38 Studios was supposed to make a major payment to the R.I. Economic Development Corporation on May 1, and now the quasi-public state agency won’t say whether it ever received the money it was owed.
Under the terms of the 2010 deal between 38 Studios and the EDC, the company agreed to pay the agency an “Annual Guaranty Fee” on May 1 each year. Documents obtained by WPRI.com say the fee is equal to 1.5% of the average amount of outstanding bonds, minus any amount in a prepayment account.
Based on that description it’s unclear exactly how much 38 Studios was supposed to pay the EDC at the start of this month. But with $75 million in bonds still outstanding, 1.5% of that total would be $1.125 million. The documents say failing to make the required payment to the EDC would be a technical default by 38 Studios.
Somewhat confusingly, the Annual Guaranty Fee that 38 Studios owes the EDC each May 1 is separate from the twice-a-year payments made to investors who purchased the $75 million in bonds.
The first four interest payments on the actual bonds – due both this year and last year on May 1 and Nov. 1 - are coming out of a Capitalized Interest Account established with $10.6 million of the original loan money. Starting in 2013, 38 Studios is supposed to pay the bondholders from its game sales; if the company can’t, the governor is required to ask lawmakers to instead pony up taxpayer money to pay them back.
EDC spokeswoman Judy Chong told WPRI.com on Monday she could not provide any additional information, and she did not respond to requests for comment on Tuesday. Asked whether the Annual Guaranty Fee was paid, Governor Chafee’s spokeswoman Christine Hunsinger said: “I would have to direct you to EDC on that.”
Chafee has said the state is concerned about 38 Studios’ solvency and is working with the company on the problem. Officials have refused to provide any details about the company’s financial situation despite calls. The Rhode Island Statewide Coalition called on Chafee and the EDC to make information publicly available.
“There should be no Rhode Island taxpayer bailout of what could be emerging as a colossal financial misadventure,” Donna Perry, the coalition’s executive director, said in a statement.
Standard & Poor’s affirmed its A rating on the EDC-38 Studios bonds on April 20 with a stable outlook. A spokesman for the rating agency told WPRI.com its analysts do not comment on rumors. A spokesman for Moody’s Investors Service was not immediately available. The bonds are insured by Assured Guaranty Ltd.
More 38 Studios coverage on WPRI.com:
- Robitaille: 38 Studios lesson is don’t pick winners and losers (May 15)
- RI taxpayers actually on the hook for $112.6M with 38 Studios (May 15)
- 38 Studios’ finances under scrutiny; RI taxpayers’ $75M at risk (May 14)
- 38 Studios debut ‘Reckoning’ sells 80,000 in March; out of top 10 (April 18)
- Schilling praises ‘pure motives’ of RI pols to Fox News’ Hannity (March 21)
- Schilling game backed by RI taxpayers is high-risk, high-reward (Aug. 3, 2010)
- Rhode Island EDC OK’d $75M Schilling deal without final rules (July 27, 2010)
Tags: 38 studios, bonds, riedc
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
I guess the next time we see “Sue Carcieri” in a headline, it won’t be an article about the former first lady.
“COLORADO PERA AND THE QUEST FOR ACTUARIAL NECESSITY” by A. Moncrief
It was the ninth year of the new millennium and deep in the bowels of the PERA administration building, long after the private equity guys had left for martinis at the Cruise Room, PERA’s legal staffers remained and practiced their dark arts.
Methodically, these alchemists of jurisprudence closed in on the formula for that most mysterious and invaluable of substances “actuarial necessity.” The young lawyers worked feverishly recalling the words of their PERA Board Chairman “Get me some actuarial necessity or it’s you’re A**! Capice?!”
Months passed, but eventually their efforts bore fruit, and the formula for “actuarial necessity” was determined. A misty-eyed PERA legal staffer presented the formula for “actuarial necessity” to the PERA Board.
“Combine one part Subterfuge, two parts Duplicity, stir, don’t beat . . . add five parts Collusion, sprinkle one part Chicanery, blend four parts Treachery, and three parts Deceit . . . in the caldron boil and bake, cool it with a retiree’s blood!”
The PERA Board was euphoric, the Board Chairman remarking “I’m proud of you son, you have the makings of a General Counsel!”
This discovery rocked the State House.
The prospect of limitless state resources triggered widespread bipartisan rejoicing. The Doctor of the Day could not staunch the bleeding of the liberal hearts. The conservatives celebrated with a welfare mom open pit roast.
Within the year, the General Assembly had launched its own facilities for the manufacture of “actuarial necessity” in the Capitol’s sub-basement.
A new legislative era was born.
In order that the Members of the House of Representatives might easily know when an “actuarial emergency” exists, the Speaker of the House installed a flashing red “actuarial emergency indicator light” on the podium. A low siren sounds when the “actuarial emergency indicator light” is illuminated (a nice touch, lending an appropriate “crisis” atmosphere to the Chambers.)
Under newly adopted House Rules, when the indicator light is flipped “on” an actuarial emergency exists, and all legal state debts and obligations may be met with “actuarial necessity” in lieu of hard cash.
The state’s Revenue Forecast became “the Revenue and Actuarial Necessity Forecast.”
The state’s economists observed a strange correlation between dips in state revenues, and spikes in state production of “actuarial necessity.”
The Appropriations Committee became the “Committee on Appropriations and Actuarial Necessity.”
The House Journal of January 17, 2013 provides an excellent illustration of the new law-making environment.
Journal of the Colorado House of Representatives, January 17, 2013
Speaker of the House: “The House will come to order.”
“The Speaker recognizes Representative Tubstrangler.”
“Ah, thank you, ah, Mr. Speaker, ah I request that the actuarial emergency light be switched on, and that we pay for the new overpass at I-25 and 128th, sixty percent with cash and forty percent with “actuarial necessity.”
“The clerk will switch on the actuarial emergency indicator light.”
“All in favor?” “Opposed?” “The ayes have it.”
Contractors Association lobbyist in the Gallery: “Bummer.”
“The Speaker recognizes the Representative from Pumpkin Center.”
“Excuse me Mr. Speaker, it’s pronounced ‘Punkin Center.’”
“The Speaker refers the question to the Interim Study Committee on Municipal Nomenclature.”
“Thank you Mr. Speaker, I move that $100 million in state revenue be distributed among Aspen homeowners who are over 65, and that the actuarial emergency light be switched off.”
“Motion passes without objection.”
“The Speaker recognizes Representative Pace from Pueblo, ‘the Home of the Heroes.’”
“Mr. Speaker, I move the PERA Annual Required Contribution Act, and request that the actuarial emergency light be switched off.”
“Clerk, switch off the indicator light.”
“Point of Order Mr. Speaker!”
“What is it Representative Prim?”
“Mr. Speaker, I ask that my colleague from Pueblo refrain from the use of obscenities on the House Floor.”
“The member will watch his language.”
“I will Mr. Speaker, I bring before you the Ann . . ., er, a bill to meet this year’s state obligation to our pension system, Colorado PERA.”
“Mr. Speaker, as you know, I have introduced this legislation each year for the last decade, each year the bill has been summarily killed; nevertheless, I intend to continue to introduce the bill until it receives the serious consideration of this body . . . and I now move for its adoption.”
“The Speaker recognizes Representative Welcher.”
“Thank you Mr. Speaker, I offer a substitute motion that the Colorado PERA Annual Required Contribution Act of 2013 be postponed indefinitely, and that the actuarial emergency light be switched on.”
“Clerk flip the switch.”
“All in favor?” “Opposed?” “Motion passes.”
“Yes, Representative Pace.”
“Mr. Speaker, in the spirit of compromise I move that the General Assembly initiate a study of the Ann . . ., er, the state’s pension obligations to be called the Interim Study Committee on Public Pensions, and I further move that you appoint such a committee.”
“The Speaker recognizes Representative Tubstrangler.”
“Ah, thank you, ah, Mr. Speaker, I stand to remind the honorable representative of the Democrat Party that ah, such profligate appointment of unnecessary study committees may very well be the ruin of our fair state.”
Speaker: “Representative Pace’s motion dies for lack of second.”
“Anything further Representative Tubstrangler?”
“Yes, ah, Mr. Speaker I move that the following bills be added to the Special Orders Calendar; the ah, Colorado Commie Higher Education Annihilation Act of 2013, and the Colorado Omnibus Corporate Welfare Act of 2013.”
Friend Save Pera Cola on Facebook. Visit saveperacola.com. Support vested pension rights and the rule of law!
[...] I explained Tuesday, the $1.125 million is an “Annual Guaranty Fee” (based on the percentage of the outstanding loan) that 38 Studios is supposed to pay the EDC [...]