Atari’s U.S. Operations File for Chapter 11 Bankruptcy

Atari SA’s U.S.-based video-game-making businesses filed for bankruptcy protection in Manhattan with the intention of separating from the unprofitable French parent and seeking independent funding.

New York-based Atari Inc., maker of video games “Pong” and “Asteroids,” as well as affiliates Atari Interactive Inc., Humongous Inc. and California U.S. Holdings Inc., asked to be jointly administered in filings yesterday in U.S. Bankruptcy Court, according to a statement.

“Within the next 90 to 120 days, the companies expect to effectuate a sale of all, or substantially all, of their assets,” in a free and clear sale under the U.S. bankruptcy laws, or confirm reorganization plans that “accomplish substantially the same result,” according to the statement.

Atari was founded in 1972 and became a pioneer in arcade and video games. It now lags behind game-making giants such as Activision Blizzard Inc., the world’s largest by sales, and Electronic Arts Inc. Atari owns or manages more than 200 brands, including “Centipede,” “Missile Command” and “Rollercoaster Tycoon.” Its games can be played online, on mobile devices and on consoles from Microsoft Corp., Sony Corp. and Nintendo Co., according to its website.

‘Significant Loss’

The move to separate the U.S. business comes after the parent company Atari said in December it was strained for cash. The French parent, which hasn’t made a profit since 1999 despite asset sales and restructuring, forecast a “significant loss” in 2012-2013, and said it would weigh all means of raising cash and had been talking to potential investors.

According to its Chapter 11 petition, Atari owes $10 million to $50 million to at least 200 creditors and possibly as many as 999. It reported assets of $1 million to $10 million.

“The Chapter 11 process constitutes the most strategic option for Atari’s U.S. operations, as they look to preserve their inherent value and unlock revenue potential unrealized while under the control of Atari SA,” according to yesterday’s statement. “During this period, the company expects to conduct its normal business operations.”

The corporate parent issued a separate, later statement saying it was seeking related relief under the laws of France.

Shares Fall

Atari fell as much as 5.6 percent to 84 centimes in Paris trading before closing yesterday at 86 centimes, down nearly 3.4 percent. The company has a market value of about 25.4 million euros ($33.8 million), a drop of about half over the past year.

The U.S. companies are seeking approval to obtain $5.25 million in debtor-in-possession financing from funds managed by New York-based Tenor Capital Management, according to the earlier statement.

Atari also requested court permission to pay pre-filing wages and benefits to its 48 employees, four of whom are paid by the hour, the remainder of whom are salaried. Average gross semi-monthly payroll is $258,600, according to court documents. As of its bankruptcy, about $90,000 of those wages and salaries remain unpaid, according to the filing.

The company also asked for permission to pay prepetition claims of “critical” vendors and for other interim relief.

The case is In re Atari Inc., 13-bk-10176, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.