Default price too steep in 38 Studios case

Fallout from the 38 Studios LLC debacle has followed a predictable pattern whenever people try to avoid responsibility. More

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PBN Editorial

Default price too steep in 38 Studios case

Posted 3/25/13

Fallout from the 38 Studios LLC debacle has followed a predictable pattern whenever people try to avoid responsibility.

First comes the blame game. The company publicly blamed the state, and specifically Gov. Lincoln D. Chafee, for letting it die. Gov. Chafee blamed the company and, in a potentially chilling lawsuit, just about everyone who had a hand in the $75 million loan guarantee given to the now bankrupt video game company.

There is plenty of blame to go around, of course. But the bottom line is the state backed the loan guarantee and must now begin paying the tab owed bondholders. Or does it?

There is growing talk the state should consider defaulting, perhaps to convince bondholders to negotiate a settlement for something less than a full payout. If the state were a private company fighting for its life, that might make sense. Survival comes before pride. But unlike a private company, Rhode Island cannot change its name, history, products or services it provides in the hopes of starting afresh, nor leave its reputation behind.

And more than besmirching the state’s good name, defaulting will drive up the cost of debt, so much so that the state may end up paying more in the long run for routine borrowing than it will paying off the 38 Studio’s bondholders. •

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