In R.I., Debate Continues Over 38 Studios Bonds as Insurers Await

June 26, 2013

This week, Rhode Island lawmakers are negotiating the final details of the state’s $8.2 billion budget. One controversial part of the discussion has been what Rhode Island should do with the state’s failed investment in 38 Studios, a video game development company that went bankrupt last year.

The Rhode Island government had issued bonds to help support the company founded by former Major League Baseball player Curtis Schilling in a bid to nurture a high-tech business hub in the state.

When 38 Studios failed, it left Rhode Island on the hook for some $100 million to bondholders. A number of lawmakers have been calling on the state to default on the bonds.

According to local reports, the Rhode Island budget would spend $2.5 million dollars in 2013 to pay back some of these bonds, followed by annual payments of more than $12 million. But some lawmakers are reportedly arguing that the $2.5 million earmarked for bond payment this year should be used for other causes.

One of the largest investors in the 38 Studios bonds is an insurance company, USAA. According to The Associated Press, USAA had bought approximately $36 million worth of the bonds.

In a statement provided to Insurance Journal, the insurer said it believes the Ocean State will honor its obligation to bondholders, and in an unlikely event that the state defaults, there is also an insurance coverage to help protect bondholders. According to local media reports, Assured Guaranty insured the 38 Studios bondholders against losses in the case of potential default.

“The Rhode Island economic development issue we hold is a high quality bond with a high quality investment grade rating,” according to a USAA spokesperson.

“We believe that Rhode Island will remain committed to their economic development bondholders. In the unlikely event Rhode Island is unable to pay its obligations, we view the additional bond insurance as a protective benefit of the investment.”

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