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.
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)