It’s unclear right now exactly what’s going on with 38 Studios’ finances and how serious the problems there are. But considering the headlines, it’s worth taking a look at how the original $75 million deal was structured.
In November 2010, the EDC borrowed $75 million from private investors on behalf of 38 Studios. The quasi-public agency agreed to pay back the bondholders with money 38 Studios pledged to provide from sales of its games. The interest rates on the bonds range from 6% to 7.75%.
Because the EDC technically sold “moral obligation bonds,” the governor is required to ask the General Assembly to appropriate money to repay the bondholders if 38 Studios can’t pay up – but the lawmakers are not required to pony up the money. It’s assumed they probably wouldn’t default, however.
So how much money could taxpayers be looking at spending? When you add together principal and interest payments, the total cost of paying off the 38 Studios bonds is projected to be $112.6 million through 2020, according to bond documents reviewed by WPRI.com. Here’s how much the payments are annually:
It’s worth noting that about $23.4 million from the original $75 million loan was set aside as a reserve to pay the bonds back, so there’s some money available in addition to whatever taxpayers fork over.
Standard & Poor’s affirmed its A rating on the 38 Studios bonds, with a stable outlook, on April 20. Asked about this week’s developments, a spokesman for the rating agency told WPRI.com its analysts do not comment on rumors. The bonds are insured by Assured Guaranty Ltd.
Update: Just to clarify, Rhode Islanders are on the hook for $112.6 million in principal and interest payments on the 38 Studios bonds between now and 2020, but not every dime will need to come from taxpayers. As I mentioned above, $23.4 million was set aside in case something went wrong. Subtracting the $23.4 million from the $112.6 million total bill would put Rhode Island taxpayers’ direct tab at around $89.2 million.
More 38 Studios coverage on WPRI.com:
- GOP’s Robitaille: 38 Studios lesson is don’t pick winners and losers (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)
This post has been updated and expanded.