Midway's Debt Obligations Come Calling, But Are Expected Guests

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MidwayEarlier this week, Sumner Redstone sold his majority stake in Midway Games. Midway has filed a notice with the U.S. Securities and Exchange Commission confirming that the change in control gives the holders of $150 million of Midway's debt the option to require that debt to be paid immediately. If Midway fails to pay that debt, than the $90 million the company owes to National Amusements (A Redstone company) would also come due. That sounds scary, but here's why it probably won't mean the end of Midway:
Yes, the filing confirms that Midway could find itself on the short end of $240 million of debt (among many other obligations). Midway also points out in the filing that it doesn't have enough liquid assets to pay the full $240 million. However, in these sorts of situations, investors will typically renegotiate the debt, since they will typically receive higher interest rates and have a better chance of recovering their loans, so it is unlikely that Midway will be on the hook for paying off the full amount immediately.

Secondly, Mark Thomas, the private investor who acquired Midway almost certainly already has an understanding with investors about renegotiating the debt or has the means to redeem the debt. Investors who don't do their due diligence aren't typically the sort of investors who stick around to acquire companies the size of Midway.

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This page contains a single entry by Editor published on December 4, 2008 11:59 PM.

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