Experts debate likely impact of RI default on 38 Studios bondsJuly 17th, 2012 at 4:44 pm by Ted Nesi under Nesi's Notes, On the Main Site
Stateline’s Jake Grovum was among the reporters who attended last week’s 38 Studios bankruptcy hearing, and today he’s out with an extended article about what went wrong. Some highlights (emphasis mine):
The state’s first error, economic development experts say, was placing so much of its economic development fund in one venture, especially a risky video game company.
“It’s the first time I’ve heard of a government giving away almost the entire store to one company,” says Anthony Figliola, the vice president of Empire Government Strategies and a familiar figure in economic development policy. “The state gave away most of its money to a start-up company. That’s alarming.” …
Since they’re moral obligation bonds, there’d be little standing for bondholders to recoup their losses should the state walk away. The wild card is the market’s reaction, and some say the backlash would be swift. “The market would treat it as tantamount to defaulting,” says Matt Fabian, managing director of Municipal Market Advisors. “They would be ostracized.”
But others say that’s overstated. With more debtors facing accumulated red ink, the market could be more forgiving. “Bondholders knew what they were getting into,” argues Craig Chilton, an adviser with BondView. “If I were a taxpayer in Rhode Island, I’d be hard-pressed to want to make good on the obligation.”
(photo: Ted Nesi/WPRI)