Electronic Arts bondholders demand 101% repayment after $20B buyout weakens credit rating
Summary
Electronic Arts bondholders holding two $750 million tranches are demanding 101% repayment.
The $1.5 billion dispute follows EA's $20 billion leveraged buyout, the largest ever recorded.
Saudi Arabia's PIF, Silver Lake and Affinity Partners financed the August close via JPMorgan debt.
EA is restructuring its bonds into Treasury like instruments to address the standoff.
01
Deal mechanics behind the bondholder dispute
JPMorgan supplied $20 billion in leveraged debt to close EA's buyout in August.
The PIF, Silver Lake and Affinity Partners consortium now carries that debt through EA's operations.
The added leverage potentially weakened EA's credit profile and cost it an investment grade rating.
A bondholder group holding two $750 million tranches is demanding 101% repayment on that basis.
02
Why a credit downgrade hands bondholders leverage
A loss of investment grade status lets legacy creditors treat the buyout as a value threat.
Bondholders facing a decline in bond value can refuse simple repayment and demand the 101% premium.
The claim follows EA's earlier failure to buy back all outstanding bonds before the deal closed.
Bloomberg had already reported that unresolved buyback as a sign of bondholder disapproval of the acquisition.
03
EA's restructuring workaround and its limits
EA is splitting bond principal and interest into Treasury like instruments, per the Wall Street Journal.
That restructuring has relatively little effect on the leveraged buyout's underlying debt load.
It may not stem the bondholder revolt over the 101% repayment demand.
The standoff keeps creditor scrutiny attached to the largest leveraged buyout in gaming history.
What this means
For Investors & VC: Add change-of-control bond covenants and refinancing premiums to diligence on leveraged gaming take-privates.
For Service Vendors: Tighten payment terms and credit checks on contracts with debt-heavy, sub-investment-grade publisher clients.
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