Rhode Island Treasurer Frank Caprio on Monday urged Moody's Investors Service to withhold its rating on a $75 million taxable bond deal that would finance the relocation of a video game company headed by former Red Sox baseball player Curt Schilling.

The Rhode Island Economic Development Corp. is the conduit issuer for the transaction. The bonds are part of Rhode Island's Job Creation Guaranty Program, which allows for up to $125 million of bonding to help generate job growth in the state. Rhode Island's 11.9% unemployment rate in July compares with a seasonally adjusted national rate of 9.5%.

The program would have $50 million of remaining borrowing capacity after the $75 million taxable issuance to help the borrower, 38 Studios LLC, relocate to Providence, Rhode Island, from Massachusetts and expand its business. Schilling founded the company, which creates online video games, in August 2008.

Caprio, a Democrat running for governor in the Nov. 2 election, has several concerns regarding the sale and aims to stop the borrowing. He contacted Moody's on Monday to potentially halt the private placement.

"I've asked them to withhold any further work or review of the deal until after a new administration is in office, if a deal is still alive at that point," Caprio said.

Moody's spokesman John Cline said the rating agency does not comment on conversations it has with its clients. The Treasurer said he plans to speak with Standard & Poor's on Tuesday. Fitch Ratings does not rate the transaction.

Caprio wants to stop the borrowing because the agreement does not hold Schilling and other top 38 Studio employees personally responsible for repayment of the loan, the debt does not carry bond insurance, and the transaction will take up a large portion of the state's $125 million job creation program bonding capacity.

The deal "creates a risky moral obligation for the state, which could adversely affect the state's bond rating and increase the cost of future state debt issuances," Caprio said. "That's really the heart of why I feel so strongly about it."

RIEDC officials did not immediately respond to a reporter's call for comment.

The deal is set to price the week of Sept. 20th, Caprio said. Wells Fargo Securities LLC is the placement agent. FirstSouthwest is the financial adviser on the deal. Moses & Afonso Ltd. is bond counsel.

The taxable bonds are secured by monthly loan payments from 38 Studios. If the company fails to make its payments, the preliminary private placement memorandum states that Rhode Island will allocate funds to keep reserve accounts flush.

"The Act and the Trust Agreement make provisions for the General Assembly of the state to appropriate annually an amount of money required to restore the capital reserve fund to the minimum capital reserve fund requirement in the event the company defaults on loan payments due to the issuer," the memorandum reads. "Monies in the capital reserve fund are used to pay owners of 2010 bonds principal and interest when due."

According to the RIEDC, 38 Studios' move to Rhode Island will add 450 high-paying jobs to the state.

"The growth of the company's workforce will largely be the result of the release of its Massively Multiplayer Online Game, Copernicus," the memorandum reads.

In addition, Caprio said the memorandum does not include disclosure of payments that the RIEDC has failed to make to its retirement fund in relation to the American Express Building the pension fund helped finance in the 1990s.

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