Schilling Rhode Island Pitch Risks $75 Million Debt: Muni Credit

38 Studios CEO Curt Schilling
Curt Schilling, chief executive officer of 38 Studios LLC and a former Boston Red Sox pitcher. Photographer: Scott Eells/Bloomberg

Curt Schilling, a pitcher on the 2004 Boston team that won baseball’s World Series, may leave Rhode Island on the hook for $75 million of bonds sold to help lure his video game company to the state.

The former Red Sox player yesterday asked the state for extra time after the Providence-based venture failed to make a $1.1 million payment to cash-strapped Rhode Island’s economic-development arm. The agency received a check from the venture at about 5 p.m. local time today and then returned it when the company’s chief financial officer advised that there weren’t enough funds to cover the payment, the governor’s office said in a statement.

Schilling, 45, last year moved the company, 38 Studios LLC, from Massachusetts after Rhode Island lent $75 million from the proceeds of a debt sale in exchange for a promise to create hundreds of jobs. The state may be forced to repay the bonds if the company defaults on the loan, according to securities filings.

“Practices like these will be increasingly under fire in the next decade or so as states reconcile reduced budgets and reduced borrowing capacity with their rising fiscal needs,” Matt Fabian, a managing director at Concord, Massachusetts-based Municipal Market Advisors, said in an interview.

Rhode Island’s situation underscores the gamble municipalities take in offering incentives to businesses promising to add workers. States from California to New Jersey are offering more than $11 billion annually in tax credits, grants, low-cost loans and reimbursements to spur employment, according to a December report from Good Jobs First.

Pension Pressure

Rhode Island and its cities are dealing with the lingering effects of the 18-month recession that ended in 2009 while the cost of benefits promised to public employees consumes a rising share of budgets. Central Falls, the state’s smallest city, entered Chapter 9 bankruptcy in August.

The state faces a $120 million fiscal 2013 deficit, according to its budget office. Treasurer Gina Raimondo led a pension-system overhaul that will save about $3 billion by steps such as suspending cost-of-living increases.

The game company, which Schilling founded in 2006, relocated in April 2011 and has created 250 jobs, according to a March 15 securities filing. The company has to generate 300 full-time positions in Rhode Island by October, two years after the bond sale. That number increases to 450 by October 2013. Its website listed 17 job openings in Providence yesterday.

A call after regular business hours today to a general voicemail box at 38 Studios’ Providence office wasn’t immediately returned. Schilling didn’t immediately respond today to an e-mail sent through his publicist, Katie Leighton.

May 1 Payment

The March filing cited a June 2011 opinion from an outside auditor saying the company would need additional financing to fund operations.

On May 1 the company missed its annual payment to the Economic Development Corp., issuer of the bonds. The debt carries the state’s pledge to repay if the agency doesn’t have the funds.

The agency’s executive director, Keith Stokes, has resigned, Governor Lincoln Chafee said today in a statement.

Schilling, who wore number 38, won three World Series during a playing career spanning two decades. His bloodstained sock from the 2004 postseason became a part of Boston history after he helped the Red Sox end an 86-year title drought.

He retired in 2009 after missing the previous season following surgery on his pitching shoulder. Schilling earned more than $114 million in salary and bonuses during his playing career, according to

‘Cure Period’

Chafee, an independent, and the agency’s board held an emergency meeting with Schilling yesterday to discuss the payment. The company has until May 30 to meet its obligation, a Chafee spokeswoman, Christine Hunsinger, said in an interview yesterday.

“The board determined that they were still within that cure period to cure the default and that they would continue to have discussions with 38 Studios,” Hunsinger said.

The Associated Press reported that Schilling declined to answer questions after the meeting yesterday, saying: “My priority right now is to get back to my team.”

The 38 Studios game Kingdoms of Amalur: Reckoning has sold 460,000 units through April after its February release, ranking 10th this year, said David Riley, executive director of Port Washington, New York-based NPD Group, a market research firm.

“For a new studio with a new title, it’s impressive,” he said.

The role-playing game is based in a fictional world with multiple characters, weapons, spells and action combat, Riley said. It was selling for $59.99 yesterday through the company’s website.

Debt Insured

Assured Guaranty Ltd. insures the 38 Studio bonds, which are federally taxable and exempt from state taxes, according to the offering document. Moody’s Investors Service rates the debt Aa3, fourth-highest, with a negative outlook, when taking into account the insurance and the state’s moral obligation to repay. The underlying rating is A2, two steps lower.

USAA Life Insurance Co. held about $36 million of the bonds as of Dec. 31, data compiled by Bloomberg show. Laura Eshelman, spokeswoman for San Antonio-based USAA, declined to comment in an e-mail.

A bond due November 2015 traded on April 10 as high as 110.15 cents on the dollar, up from 100 when the bonds first sold in October 2010, according to data compiled by Bloomberg.

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