Not surprisingly, Midway has filed for Chapter 11 protection:
'Mortal Kombat' maker Midway Games files for bankruptcy
Change in ownership accelerates debt woes
By Wailin Wong | Tribune reporter
February 13, 2009
Video game-maker Midway Games Inc. sought bankruptcy protection from creditors Thursday, the culmination of a chain of events that started when a private investor bought a majority stake in the Chicago-based company last year. That investor appears to be a major beneficiary of Midway's reorganization.
Midway, the creator of the long-running "Mortal Kombat" franchise, filed Chapter 11 documents in U.S. Bankruptcy Court in Delaware. Operations outside of the U.S. were unaffected. The company said it expects to conduct business as normal during the reorganization.
The road to bankruptcy began at the beginning of December, when media magnate Sumner Redstone sold his 87 percent stake in Midway to Mark Thomas for $100,000 and $70 million in debt. The debt Thomas assumed puts him in an enviable position compared with other creditors.
"The creditor position was worth more than $100,000," said Michael Pachter, an analyst who follows Midway at Wedbush Morgan. "This was a relatively safe path to making a lot of money."
The change in ownership triggered provisions in two series of Midway convertible bonds that allowed creditors to request full repayment. The company warned in early December that it couldn't cover those obligations if all of its bondholders asked for accelerated repayment.
Midway's bondholders agreed to waivers on the repayment. But one of those extensions was set to expire Thursday and the other Feb. 19.
The $70 million in debt that Thomas assumed consists of a $30 million secured claim and a $40 million unsecured loan, according to the bankruptcy documents and a filing that Midway made Thursday to the Securities and Exchange Commission. Thomas holds the lone secured claim, putting him in front of the company's unsecured creditors. Thomas' $40 million loan is listed as the third-largest unsecured claim, behind the two series of convertible bonds.
Thomas' New York-based attorney declined to comment.
Midway's shares closed down 36 percent, at 16 cents. The New York Stock Exchange suspended the company's stock Thursday in light of the bankruptcy filing. Before that, the company was in danger of delisting because of its low closing price and market capitalization.
wawong@tribune.com
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