PROVIDENCE, R.I. (WPRI) – Wall Street gave Rhode Island a sharp rebuke Monday as Moody’s Investors Service downgraded its rating on the bonds sold to benefit Curt Schilling’s defunct 38 Studios, citing a growing resistance among lawmakers toward paying back the bondholders.

Read the rest of this story »

PROVIDENCE, R.I. (WPRI) – In a battle pitting Rhode Island against Wall Street, Wall Street will always win.

That was the emphatic message Thursday from top aides to Gov. Lincoln Chafee, who warned the state would risk “severe” consequences if lawmakers refuse to pay bondholders roughly $90 million they loaned the R.I. Economic Development Corporation to fund Curt Schilling’s bankrupt video-game company, 38 Studios.

Read the rest of this story »

In a news advisory issued Tuesday, House leadership announced Melo’s panel will hear a presentation Thursday afternoon from Matt Fabian, managing director of Municipal Market Advisors, about whether taxpayers should repay the 38 Studios bonds. “The presentation is intended to provide insight that a neutral, expert third party can bring to the topic,” the statement said.

But Fabian – the only witness the committee is scheduled to hear from – isn’t necessarily neutral.

Last July, Fabian predicted doom for Rhode Island if taxpayers fail to pay the 38 Studios bondholders, who include USAA and Transamerica. “The market would treat it as tantamount to defaulting,” Fabian told Stateline. Rhode Island, he warned, “would be ostracized.”

Fabian is entitled to his opinion and, as an oft-quoted expert on municipal bonds, he may be right. But the same Stateline article quoted another expert – Craig Charlton of BondView – who said Fabian is exaggerating the negative impact; nobody who shares Charlton’s views will be testifying Thursday.

“Bondholders knew what they were getting into,” Charlton told Stateline. “If I were a taxpayer in Rhode Island, I’d be hard-pressed to want to make good on the obligation.” He added: “This is something they can legally walk away from. It’s a lot of money to not have to pay.”

Fabian’s firm, Municipal Market Advisors, is based in Concord, Mass. “MMA’s clients include leading investment firms, banks, security dealers, financial advisors, issuers and regulators,” according to its website. House spokesman Larry Berman said Fabian is who lawmakers should hear from.

“The definition of neutral means that Mr. Fabian doesn’t have a stake in this issue,” Berman said in an email. “His company is well-respected and can provide expert third-party analysis.”

The Finance Committee’s announcement comes the same day the Rhode Island Senate GOP caucus, R.I. Republican Party Chairman Mark Smiley and Moderate Party Chairman Ken Block all called for the state to refuse to repay the 38 Studios bonds.

The bonds are covered by an insurance policy the state bought from Assured Guaranty Municipal Corp. on Oct. 22, 2010. “The Policy guarantees the scheduled payment of principal of and interest on the 2010 Bonds when due,” according to the original deal documents.

• Related: Salmon: ‘Confusion and hypocrisy’ over 38 Studios bonds (May 2)

This post has been updated.

PROVIDENCE, R.I. (WPRI) - In his first TV interview since losing the 2010 governor’s race, former General Treasurer Frank Caprio told WPRI 12 he regrets his infamous comment that President Obama could take his endorsement and “shove it,” attributing the outburst to the frustrations of a losing campaign in its final weeks.

Read the rest of this story »

• Video: Watch the full Newsmakers with Frank Caprio (May 14)

The answer is that yes, moral obligation bonds are effectively general obligations bonds in all but name. The state has found a way of issuing bonds without having to get the approval of the legislature, but they’re still obligations of the state, and the state doesn’t distinguish the two types of obligation. And yes, Rhode Island should be paying the lower interest rate rather than the higher interest rate. But that doesn’t mean that voters should have to approve moral obligation bonds: it could equally mean that voters should stop having to approve general obligation bonds.

That is what all governors really want: to have the legislature and voters stop interfering in their borrowing strategy. And that is the real reason why Chafee is staying current on his moral obligation bonds. He wants the world to see voter approval as an anachronism, and in an ideal world he would love it if moral obligation bonds had the same legal backing — and therefore the same lower yield — as general obligation bonds. That way he’d never need to issue a general obligation bond, or get voter approval for such a thing, ever again. It’s a very attractive vision — and it’s not one he’s going to give up just because Rhode Island is suffering a fiscal nightmare these days.

As someone who spends a lot of time listening to Lincoln Chafee, I’m skeptical that the governor has truly thought through the reasons for drawing a distinction between moral-obligation and general-obligation bonds (or not drawing one). But as Salmon makes clear, this debate has demonstrated that there’s no real difference between the two types of debt when it comes to whether taxpayers will have to cover the liability.

• Related: Chafee reveals RI’s confusion about the 38 Studios bonds (May 1)

That raises a question that many state residents – especially retired employees – would like to see answered: If Rhode Island can’t afford to keep its promises to retirees, how can it afford to keep its promise to the 38 Studios bondholders? Chafee isn’t prepared to answer. …

And when it came to 38 Studios, Chafee couldn’t even answer a simple question: Is it ever appropriate for the state to issue moral obligation bonds?

“I’m not an expert on that issue,” he responded. After a year of dealing with the fallout from 38 Studios’ collapse, you would think he would be.

As the interview ended, Chafee remarked, “I’ll have to think a little more about Josh’s question” — the one about why you can freeze COLAs but can’t default on 38 Studios.

Local officials are fearful that the bond market won’t differentiate between a default on the moral-obligation bonds issued for 38 Studios and the general-obligation bonds backed by the state’s full faith and credit, particularly since Rhode Island is a municipal minnow compared with, say, California. A top policymaker once asked me to imagine a Wall Street Journal headline the day after: “Rhode Island defaults on bonds.”

While that’s certainly possible, it’s worth scrutinizing.

First of all, if any state officials in the country should be able to go to Wall Street and soothingly explain why the 38 Studios case is a unique one and the default won’t set a precedent, wouldn’t they be Gina Raimondo – a former venture capitalist beloved by financiers who crafted a landmark law slashing pension liabilities – and Rosemary Booth Gallogly – a veteran policymaker who’s overseen the successful restructuring of municipal budgets in Central Falls and elsewhere, all while explicitly protecting bondholders?

Maybe, maybe not. (And maybe Raimondo and Gallogly aren’t interested in trying.) But if that’s the case, a moral-obligation bond is effectively a general-obligation bond in all but name, with full repayment by Rhode Island taxpayers promised no matter what. If so, shouldn’t voters have to approve moral-obligation bonds at the ballot box as they already do with general-obligation bonds – and shouldn’t Rhode Island be paying the lower interest rate investors get on a lower-risk general-obligation bond?

PROVIDENCE, R.I. (WPRI) – A local legal-aid group is accusing Moody’s Investors Service of failing to properly analyze the potential scenarios if state officials decide not to pay bondholders $75 million following the collapse of former Red Sox pitcher Curt Schilling’s video game company 38 Studios.

Read the rest of this story »

• Related: Target 12: USAA, Transamerica are top 38 Studios bondholders (April 17)

PROVIDENCE, R.I. (WPRI) – A prominent financial firm that caters to U.S. military personnel bought nearly half the $75 million in bonds that Rhode Island taxpayers backed on behalf of Curt Schilling’s game company 38 Studios, the Target 12 Investigators have learned.

Read the rest of this story »

Gov. Lincoln Chafee’s nominee to head up the Economic Development Corporation may be a blast from the past, but Marcel Valois has made it pretty clear that the quasi-public agency is in need of major changes.

In an op-ed published last year in the Providence Journal, Valois and former Rhode Island Public Expenditure Council executive director Gary Sasse argued that the state’s economic development strategy “should be changed from a government-dominated, reactionary model to one that operates within a strategic network of committed, innovative, collaborative and agile stakeholders from all sectors.”

Here’s their pitch:

To reboot the Ocean State’s economic development, a new public/private economic-development process should be built on the following organizational framework:

• Create an Office of Strategic Development and Economic Policy within the governor’s office, using existing resources. This office would help set a vision and strategic direction for economic-development activities. It would also work with other state agencies to ensure that economic-development-related functions are effectively coordinated and to reinforce statewide economic strategies and programs. This office would help make sure that all state agencies are rowing in the same direction.

• Establish an independent, university-based professional economic-research collaborative to provide decision makers with real-time economic data and analysis needed in making evidence-based decisions. The collaborative would collect and aggregate critical economic data create dashboard indicators measure specific trends, develop performance metrics, conduct cost/benefit analyses for major state investments and market based reality checks. The mission of the collaborative would be provide invaluable insight and foresight necessary for formulating effective economic-development policies.

• Transform the current EDC in to a public/private Economic Resource and Management Investment Board. This new board would have the responsibility invest state economic-development resources into public/private initiatives in the areas of (1 marketing, reputation management, and customer-relationship management, (2) restructuring public-finance programs to better leverage private capital through public and private collaboration and professional financial management, including underwriting and oversight, (3) investing new business expansion strategies and value-added services and measuring the return on those investments.

Read the whole piece here.

After Curt Schilling’s game company collapsed into bankruptcy last spring, Chafee asked for the resignations of every R.I. Economic Development Corporation board member who voted in 2010 to approve the company’s $75 million taxpayer-guaranteed loan.

Nearly all the members complied in one way or another, with one noteworthy exception: George Nee, president of the Rhode Island AFL-CIO and the leading voice of organized labor in the state. Nee didn’t resign and continued to attend board meetings despite Chafee’s request.

And on Thursday it was Nee – not Chafee – who got the last word: the governor just nominated the union leader for another term on the struggling board, along with four other new members.

Asked by WPRI.com why he’d flip-flopped about Nee, Chafee said in a statement: “I felt strongly that anyone who voted in favor of the 38 Studios deal should resign from the EDC board. Obviously, there was a difference of opinion there between me and George Nee.”

“As time has passed, I have been able to work with George on the board and have a number of private discussions with him regarding 38 Studios,” the governor continued.  “I believe that George agrees with me that the process was not performed in the proper way and that 38 Studios was a mistake.”

Chafee’s new nominees for the board are Shannon Brawley, executive director of the Rhode Island Nursery and Landscape Association; Rhode Island College President Nancy Carriuolo; Roland Fiore, president of South County Sand & Gravel Co. Inc.; and Jason Kelly, executive vice president of Moran Shipping Agencies. All the nominations, including Nee’s, are subject to Senate confirmation.

• Related: Chafee picks Parsons despite ties to EDC credit-card scandal (Nov. 30)

PROVIDENCE, R.I. (WPRI) – Former Red Sox pitcher Curt Schilling and three other former 38 Studios executives will be allowed to access $2 million in insurance money that could have gone to creditors in the company’s bankruptcy case to help cover defense costs in a lawsuit filed by the R.I. Economic Development Corporation, according to a review of court documents by WPRI.com.

Read the rest of this story »

• Related: Trial over 38 Studios deal with RI may be a year away (Jan. 25)

PROVIDENCE, R.I. (WPRI) – It could be at least a year before Rhode Island’s lawsuit against Curt Schilling and other architects of the 38 Studios deal goes to trial.

Read the rest of this story »

• Related: Target 12: EDC ignored signs of risks on 38 Studios (Nov. 20)

PROVIDENCE, R.I. (WPRI) – Former Red Sox star Curt Schilling’s defunct video game company owes the city nearly $500,000 in tangible property taxes, internal auditor Matthew Clarkin said Thursday.

Read the rest of this story »

Schilling conspired with Wells Fargo & Co. (WFC) bankers and other advisers to persuade the state to loan the company $75 million, knowing it wouldn’t be enough to finish development of Project Copernicus, a new game, according to the civil complaint brought in Rhode Island Superior Court. The deal won approval in July 2010. By May 2012, 38 Studios went bankrupt, leaving taxpayers on the hook for the loan. …

The collapse left almost 400 people out of work, including 300 in Rhode Island. It shows the risks confronting states and cities in doling out corporate incentives, which amount to about $70 billion a year, according to Kenneth P. Thomas, who teaches politics at the University of Missouri-St. Louis. …

Bonds maturing in November 2015 were the most recently traded among securities tied to the deal. The debt yielded 4.27 percent Oct. 15, compared with 6 percent when issued two years ago, according to data compiled by Bloomberg.

Schilling is one of 24 players who are on the Hall of Fame ballot for the first time this year, ESPN reports. The Baseball Writers’ Association of America will vote through next month, with the results announced Jan. 9.

And while Schilling may be persona non grata in Rhode Island because of the 38 Studios debacle, he’s got at least one local sportswriter in his corner – The Providence Journal’s Brian MacPherson:

The numbers Schilling compiled in his 20-season career — especially with his postseason exploits, particularly his memorable “Bloody Sox” start in 2004 — put him squarely in the middle of the in-or-out gray area.

Schilling won 216 games and compiled a 3.46 ERA in his career. His win total ranks him in a tie with Wilbur Cooper and Charlie Hough for 82nd all-time, and his ERA ranks him 391st all-time — on its face, certainly not Hall of Fame-caliber.

More relevant than his ERA, however, might be his adjusted ERA+ — a number that takes into consideration that Schilling pitched in the middle of the Steroid Era and its accompanying offensive inflation.

• Related: Schilling selling Mass. home for $3.5M after 38 Studios collapse (Oct. 2)

As we first reported last night, Tim White and I unearthed some eye-opening documents that were circulating inside state government during the four-month window when officials were putting together the 38 Studios deal.

A sample:

In an April 9 email, Cole acknowledged the firm the EDC wound up using – Strategy Analytics of Boston – wasn’t as strong a choice as an alternative, Monitor Group of Cambridge.

Monitor Group is “clearly the best fit from an analytical and prestige standpoint, but their price range is prohibitive,” [Timothy Cole, the EDC's senior strategy and research manager,] told [EDC Deputy Director J. Michael] Saul. …

In another email, Saul said he “felt we should stay away from any statements about financial projections” when briefing the EDC board. …

Documents show there was a tension between the need for speed and the need for scrutiny. A July 23 memo to the House of Representatives’ fiscal advisor marked confidential reported that 38 Studios’ internal projections forecast the company would book $1.15 billion in gross revenue and $570 million in net revenue from 2010 through 2015.

“I did not check the math…but these appear accurate,” the House Fiscal memo said.

Read the whole thing here. And behold the power of open records.

PROVIDENCE, R.I. (WPRI) – Rhode Island officials say they did extensive due diligence before awarding a $75 million taxpayer-guaranteed loan to Curt Schilling’s doomed video game company, but documents obtained by Target 12 suggest the process was rushed and shortcuts were taken.

Officials began drafting the terms of the 38 Studios deal as early as March 26, 2010, more than two months before state lawmakers even created the new $125 million loan-guarantee program that was used to lure Schilling’s company to Rhode Island in July, according to more than 2,500 pages of emails, financial documents and internal memos the EDC provided in response to Target 12′s public records request.

Read the rest of this story »

PROVIDENCE, R.I. (WPRI) – Lawyers for the R.I. Economic Development Corporation filed suit in R.I. Superior Court on Thursday against some of the architects of the 2010 deal that gave Curt Schilling’s ill-fated video game company a $75 million taxpayer-guaranteed loan.

Read the rest of this story »

From the ashes of Curt Schilling’s failed video game company 38 Studios comes Fart Cat.

It’s a simple, irreverent game played on an iPhone involving a cantankerous cat, and is one of the first commercial products made by former employees of 38 Studios after the company’s spectacular collapse in May that put some 400 people out of work.

Stunned and devastated at the time, many of the designers, artists, producers, and computer engineers who worked for Schilling have since rebounded. Some joined similar companies in Massachusetts, adding to the state’s growing game sector; others took offers from big West Coast game studios. And a few, such as the creators of Fart Cat, built new companies from scratch.

PROVIDENCE R.I. (WPRI) – The first of two auctions for items previously belonging to failed videogame company 38 Studios has grossed $180,000.

Read the rest of this story »

PROVIDENCE, R.I. (WPRI) – More than half of Rhode Islanders disapprove of how Governor Chafee handled the collapse of Curt Schilling’s game company, offering evidence the issue may not be a political winner for the beleaguered independent, according to an exclusive WPRI 12 poll released Tuesday night.

“I can pledge to the Rhode Island citizens that they’re going to have a better Rhode Island through my tenure in office,” Chafee told WPRI.com. “All I know is I’m working hard every day, and good times are ahead.”

Read the rest of this story »

• Interactive: Check out the complete WPRI 12 poll results

MEDFIELD, Mass. (WPRI) – Former Red Sox pitcher Curt Schilling has put his 26-acre property outside Boston on the market and is seeking nearly $3.5 million, less than four months after his taxpayer-backed company 38 Studios filed for bankruptcy.

Read the rest of this story »

Update: Boston magazine’s Jason Schwartz tweets:

Full circle alert: Schilling was hosting a fundraiser at that house when he met RI Gov Carcieri & they got ball rolling on #38Studios deal.

— Jason Schwartz (@SchwartzHub) October 2, 2012

• Related: Schilling talks 38 Studios tonight in ESPN documentary ‘Broke’ (Oct. 2)

Schilling will discuss how he was impacted by the recent collapse of 38 Studios, his taxpayer-backed video game company, in the new ESPN documentary “Broke,” which airs tonight at 8 p.m. to kick off the new season of the sports network’s 30 for 30 documentary series.

“Broke” director Billy Corben told The Wall Street Journal the documentary offers a “step by step guide on how to go broke” by telling the stories of athletes including Bernie Kosar, Andre Rison, Cliff Floyd and Schilling. “I never believed that you could beat me,” Schilling says in the preview. “I lost.”

Here’s a quick preview of “Broke” from the director:

The remaining assets for 38 Studios, the bankrupt developer founded by former Red Sox pitcher Curt Schilling, are being auctioned off, and the sale includes Xbox 360 XDK developer units that Microsoft hopes to reclaim.

According to an online listing, auctioneers at the SJ Corio Company have scheduled two events — one on October 16th in Maryland and one on October 23rd in Rhode Island. The auctions list assets including computers, printers, copiers, projectors, and televisions. Under the “Gaming consoles” category, the October 16th auction lists “Xbox 360 XDK consoles,” referring to the Xbox Development Kits that Microsoft provides to Xbox developers.

The local auction will be held Tuesday, Oct. 23 at 10:30 a.m. at 38 Studios’ former headquarters, One Empire Plaza in downtown Providence. Potential buyers can inspect what’s available starting at 9 a.m. The listing says there will be computers, recording studios, microphones and projectors, as well as refrigerators, a ping-pong table, libraries, a 20″ conference table “and so much more.”

Microsoft isn’t pleased about the inclusion of its Xbox kits – the software giant told Joystiq: “We will be contacting the appropriate parties involved in the auction of 38 Studios’ assets to remove the XDK units from the auction listing and to secure the return of the consoles to Microsoft.”

PROVIDENCE, R.I. (WPRI) – A law firm assigned to handle some of the legal work in the 38 Studios bankruptcy filing has asked the courts to be reimbursed $28,716 for just over two months of work.

Read the rest of this story >

PROVIDENCE, R.I. (WPRI) – The R.I. Economic Development Corporation would be demoted and supplanted by a new secretary of commerce who reports directly to the governor if Rhode Island officials embrace the recommendations of an independent study ordered in the aftermath of the 38 Studios debacle.

During a press conference on Tuesday, Chafee thanked RIPEC for its “terrific, hard work” in putting together the study, which involved 75 interviews with more than 100 people. But the governor didn’t embrace its findings – and left the event without listening to the presentation by John Simmons, RIPEC’s executive director.

“I’m very impressed with what has happened in the last few months down at EDC,” Chafee said. The governor later added: “We’re moving forward. … I have full confidence in what is occurring at EDC right now.”

Read the rest of this story »

• Related: Read the full RIPEC study on economic development (PDF)

PROVIDENCE, R.I. (WPRI) – A Delaware law firm has submitted a bill approaching six-figures for less than three months of work in the 38 Studios bankruptcy case, according to court documents.

Read the rest of this story »