Rhode Island has hired SJ Advisors LLC to examine the impact of possibly defaulting on moral obligation bonds a state agency issued for the defunct 38 Studios game developer.

The Eden Prairie, Minn., firm, run by Steven Johnson, expects to issue a report to Gov. Lincoln Chafee's administration and legislative leaders by mid-April.

State lawmakers, while approving the initial $2.5 million payment last year after considerable debate over whether to pay debt that former Boston Red Sox pitcher Curt Schilling's bankrupt video-game company left behind, also allocated $50,000 to study the effects of defaulting on the payment.

Rhode Island issued requests for proposals from financial analysts, but got no responses.

"It's a delicate subject," said one state official. The state increased the proposed payment to a maximum of $75,000 and bypassed the formal RFP process in its follow-up search for a firm.

The mid-April time frame will give legislative leaders the opportunity to review and debate the report before the end of the session.

38 Studios received a $75 million loan guarantee in 2010 from the Rhode Island Economic Development Corp. as an enticement to move to downtown Providence from Maynard, Mass.

Schilling's company in 2012 filed for liquidation under Chapter 7 of the bankruptcy code, leaving Rhode Island on the hook for $75 million in bond principal, plus $38 million of interest. Chafee last month signed a bill enhancing the chances of a settlement.

Lawmakers in 2013 debated at length whether to honor the debt.

Moody's Investors Service threatened to downgrade Rhode Island, saying a moral obligation essentially paralleled a general obligation. Moody's rates Rhode Island's GOs Aa2, while Fitch Ratings and Standard & Poor's rate them AA.

The controversy generated a buzz in the capital markets, and triggered national debate over state funding for companies in high-risk sectors. It also led the Chafee administration to overhaul the EDC and rebrand it as Commerce RI.

Chafee's proposed budget for fiscal 2015 includes a $12.5 million payment for 38 Studios debt. Under a plan Chafee introduced last year, Rhode Island would pay roughly that amount annually through 2020 until the debt is retired

In 2013, Office of Management and Budget Director Peter Marino warned of dire consequences to Rhode Island's standing in the credit markets, should the state default.

"While the cost to taxpayers is distasteful and all is being done to mitigate this initiative undertaken by the previous administration, we must ensure that the state's credit rating and access to markets is maintained at a cost taxpayers can afford," Marino wrote in a report to Department of Administration Director Richard Licht.

"The rating agencies' willingness to react harshly and over a long period of time increases the potential risks to the state, and will not be confined to only the state's general obligation bonds and appropriation debt -- municipalities and other state entities will also feel the impact."

A message seeking comment was left with Johnson.

According to its website, SJ Advisors' services include pre-transaction planning, swap advisory, bond-proceeds reinvestment, post-issuance compliance and monitoring of strategic debt and derivatives portfolios.

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