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Midway Files For Bankruptcy As Debt Deadlines Loom
Midway Files For Bankruptcy As Debt Deadlines Loom Exclusive
February 12, 2009 | By Leigh Alexander

February 12, 2009 | By Leigh Alexander
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More: Console/PC, Exclusive



Midway's U.S. operations filed for Chapter 11 bankruptcy today, as the Mortal Kombat publisher runs out of time to pay its debts.

The publisher owes $150 million to its bond owners because of a buyback obligation triggered when media mogul Sumner Redstone sold his controlling stake in the company on December 1.

Midway managed to gain a month's time to buy back the senior notes through two separate agreements it reached with its bond owners. The first of these, which accounts for half the notes, expires today, and the other $75 million expires on February 19th.

Today's bankruptcy filing suggests that Midway was unable to either find a source of credit or gain additional time from the bond owners, and the company says it "anticipated it would be unable to satisfy" both classes of debt.

And unless Midway pays back the $150 million in notes by February 19, it will end up owing Redstone's National Amusements Inc. an additional $90 million, compounding its total debt to $240 million.

"This was a difficult but necessary decision," Midway president, CEO and newly-appointed Board chairman Matt Booty said.

"This filing will relieve the immediate pressure from our creditors and provide us time for an orderly exploration of our strategic alternatives," he said.

Filing for Chapter 11 is the "next logical step" in Midway's reorganization process, Booty adds. According to the company, it will be able to keep doing business as usual, and it's seeking court permission to go on managing its own operations.


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Comments


Lo Pan
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Area 51 debacle cost them dearly...

agostino priarolo
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Please, can a Nobel Price please explain to me:



How comes that a company A with a big debt K, owned and managed to raise that debt by X, is sold by X to Y, and now, 2 months later, A and Y owe to X the debt K plus another big J in compounded interests? No, because me and other 4-5 billions people don't understand that.

Thomas Brockhage
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An accounting stunt on the original owners (A) part. With a couple of assumptions it could go like this: A is part of large public entity with reporting obligations and owns/controls company B with large debt N owed to A but possibly to numerous other entities. B's only asset are some difficult to appraise IP rights. B is a money sink and without further support bankrupt. Due to consolidation requirements, A's books show B's third party debt as liabilities with little assets against those. In case of B going out of business, A needs to report B's internal and third party debt as immediate loss. In any case, N would need to be adjusted down in value. Shady solution: Sell B to a fall guy and avoid reporting your loss immediately. Turn your old liability into an asset(!) as you now expect payment from an independent entity. Implement additional evil default penalties to manage the write down on the value of B's debt. Argue that there is residual value in the IP owned by B.

Depending on how much was learned from Enron, mileage may vary but the overall effect on A's books is at least positive, you screw outside debtors and you gain time to liquidate the IP while working around reporting requirements. Something like that. I am speaking about the fictitious company you described, any similarities to real events, people or the original post are purely coincidental.

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Paul Lazenby
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Agreed with Key Rob on this one.

And I met with one producers in A51 a few years back.

He=no clue what he was doing.

If his ignorance was any indication of the rest of the organization, then its shocking to me they held on for this long.


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