Speaker backs repayment of 38 Studios loan

PROVIDENCE, R.I. (WPRI) — House Speaker Nicholas Mattiello announced he supports repaying the more than $90 million owed to bond holders in the failed 38 Studios deal following a meeting with a Democratic caucus Thursday.

Mattiello visited with Wall Street ratings agencies Moody’s and Standard & Poor’s this week to discuss the possibility of defaulting on the loan. He wouldn’t say what he was told by the agencies, but both have warned the state’s bond rating will suffer if lawmakers decide to default on the loan.

“The state of Rhode Island I believe has about $1.6 billion of outstanding bonded indebtedness with potential escalation clauses,” said Mattiello. “I believe it’s in the best interest of the state to pay the 38 Studios bonds.”

The agency then known as the R.I. Economic Development Corporation sold $75 million in bonds to investors in 2010 to entice 38 Studios to Rhode Island. The company’s subsequent failure in 2012 left taxpayers on the hook for roughly $90 million in principal and interest payments through the end of this decade.

The types of bonds sold to help 38 Studios are known as moral-obligation bonds, which means the state only promised to consider repaying investors if 38 Studios was unable to do so; that’s different from traditional general-obligation bonds, which the state pledges to repay no matter what.

Some lawmakers and both Republican candidates for governor have suggested the state should refuse to pay, but Gov. Lincoln Chafee has strongly urged the General Assembly to make the next payments, totaling $12.5 million.

“It’s a tough decision, we all know that, to have to pay $12.5 million dollars, but it’s the right thing to do for Rhode Island,” Chafee said. “Common sense, or horse sense, or whatever you call it, you have to pay your debts, there’s usually no way around it”

Mattiello expressed that paying back the bond holders would mitigate the state’s losses.

“At this point, I’m not looking to spend another $75,000 of the state’s money to reach a conclusion that every expert that we’ve brought in has said unanimously,” Mattiello added.

The state made its first payment of $2.4 million earlier this month.

Ted Nesi contributed to this report.

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