Rhode Island House to begin public hearings on whether state should pay $113M 38 Studios debt

The Rhode Island House of Representatives is set to begin public hearings to debate whether the state should make good on its obligations to defunct video game developer 38 Studios, reports the Providence Journal.

A panel from Rhode Island's House Oversight Committee requested documents related to the company more than a month ago, and received thousands of pages of material this week. Now, says committee chairman Michael J. Marcello, the panel is ready to move forward with the discussion.

"The perception out there is that we haven't been doing anything," said Marcello during a meeting yesterday. "But the fact of the matter is we've gathered a ton of documents and we haven't had a hearing because we just got the documents."

According to the Providence Journal, the documents consist of financial and contractual records for 38 Studios and other companies that applied to the Rhode Island Economic Development Corporation's Job Creation Guaranty Program. Curt Schilling convinced the Economic Development Corporation to give his company, 38 Studios, a $75 million loan backed by the state in 2010. When 38 Studios went belly-up last spring after the launch of its only game, Kingdoms of Amalur: Reckoning, the company left Rhode Island and its taxpayers on the hook for the loan, which, after interest, comes to nearly $113 million.

Also part of the records are documents related to IBM, Wells Fargo and First Southwest, which oversaw and advised the parties in the deal.

Rhode Island is considering defaulting on 38 Studios' debt

Rhode Island legislators said last month that they're considering defaulting on the debt, which the state is not legally obligated to pay. The committee will discuss two main issues in the hearings. First it intends to figure out whether the state's bond insurer, Assured Guaranty Municipal Corporation, will cover the debt, as well as what the insurance means in the first place and what happens if the insurer pays.

"There is a misconception out there that if the insurance pays that somehow the state or the [Economic Development Corporation] is off the hook," said Marcello.

The panel will also determine whether the state retained an independent third party to manage the deal and check in on 38 Studios periodically, an oversight capacity in which IBM was supposed to serve.

Rhode Island Gov. Lincoln Chafee, who was not in office when the deal with 38 Studios was made, opposes the default plan because he believes the state should be responsible for its debts. The state government must approve a new budget by July 1, and Gov. Chafee's proposal includes a payment of $2.5 million toward the loan, which would be the first in the debt repayment plan.