EDC to give Schilling's firm only $51M

PROVIDENCE, R.I. (WPRI) - Curt Schilling’s video game company initially will only be given two-thirds of the $75 million loan the state is taking out on its behalf, with the rest being held in a special account to cover payments on the debt.

The R.I. Economic Development Corporation is in the final stages of negotiations ahead of the $75 million bond sale for Schilling’s company, 38 Studios, which has promised to move its headquarters to Rhode Island and create 450 jobs here in return for the loan.

38 Studios will receive about $51 million of the proceeds from the bond sale as it meets various milestones over the 15 months after the transaction closes, according to a fact sheet from the EDC. Nearly $20 million more will be held in reserve to pay off the debt. The remainder will cover bankers' fees and other costs.

If 38 Studios meets all the state's requirements over those 15 months, it will then get another $13 million or so out of the $20 million reserve fund, EDC spokeswoman Melissa Chambers said. The state will set aside the remaining $7 million to help pay back investors in case something goes wrong and 38 Studios can't cover what it owes them.

But if the company were to run into trouble owing more than $7 million, state lawmakers would have to decide whether to step in and use taxpayer money to pay back the investors who provided the loan.

The agency provided Eyewitness News with the updated fact sheet about the transaction on Wednesday, but Chambers said the EDC’s senior leadership would no longer speak to reporters about 38 Studios until the transaction is a done deal.

Barclays and Wells Fargo, the two banks marketing the $75 million moral-obligation bond for 38 Studios to investors, are expected to complete the transaction before the end of this month. The two rating agencies vetting the deal, Moody’s and Standard & Poor’s, had not finished evaluating it as of Wednesday morning, Chambers said.

The controversial loan guarantee, which was approved by the EDC board in late July, has been criticized by a number of politicians running for office this fall but strongly backed by Gov. Donald Carcieri. It will use 60 percent of a new $125 million loan fund for tech companies the General Assembly created last spring.

• Related: Caprio puts Schilling deal in jeopardy (Aug. 31)
• Related: Moody's, S&P may delay 38 Studios loan (Aug. 27)

When the transaction closes, 38 Studios will receive $13 million. The remaining $38 million the company is slated to get will be disbursed in pieces over the following 15 months if the company meets milestones on job creation and the development of its long-gestating game release, Project Copernicus.

The company will also pay EDC “a success fee” of between $15.3 million and $18.8 million, although the fact sheet did not say when and under what conditions that would happen.

38 Studios is required to announce the site of its new location in Rhode Island no later than Nov. 30, and must sign an enforceable 10-year lease to get the loan proceeds, the fact sheet said. The company’s intellectual property, equipment and other assets will be offered to the state as collateral.

The agreement also includes a provision saying “it would constitute a default on the loan” if 38 Studios were to “relocate the company or any substantial portion of its operations outside of Rhode Island.” In that case, the company would have to pay its debt and other penalties immediately.