Midway Games faces default

Video game maker Midway Games is fighting for its survival after warning this week that it could default on $240 million in debt.

Chicago-based Midway disclosed in a regulatory filing Thursday that it had hired Lazard Ltd. to evaluate “strategic and financial alternatives.” Midway spokesman Geoffrey Mogilner declined to elaborate on those options but said the company had sought Lazard’s advisory services in advance of a looming debt payment in April.

Midway hired Lazard on Nov. 20, a week before Sumner Redstone sold his 87% stake in the video game maker to private investor Mark Thomas for about $100,000, or less than a penny a share.

Under terms of the deal, Thomas also gets the right to collect a $70-million loan that Midway owes Redstone’s National Amusements Inc.

Midway didn’t know of Redstone’s plans in advance and has communicated with Thomas through the investor’s attorney, according to a person familiar with the situation.

Midway owns several valuable game franchises, including Mortal Kombat and Blitz.

According to the regulatory filing, the change in ownership triggers provisions in two series of Midway bonds that allow bondholders to ask for full repayment.

Midway said it expects all of its bondholders to request this option. This would require Midway to pay out $150 million, an amount that the company said it would not be able to furnish based on its current liquidity.

Midway’s default on the $150 million also would allow National Amusements, Redstone’s holding company, to ask for immediate repayment of a $90-million revolving credit line that it extended in February. Midway said it also would be unable to make that payment.

These events could take time to unfold, since Midway has 20 days to notify its bondholders. Those creditors then have 30 days to respond.

The $70 million in debt that Thomas assumed in the sale was part of this $90-million loan agreement. Mogilner said National Amusements still was administering the credit on Thomas’ behalf.

Thomas’ attorney declined to comment. No one at National Amusements was available for comment.

A new Securities and Exchange Commission filing by Thomas on Friday revealed little about the investor, who is described as a U.S. citizen. The filing said the money for the Midway deal came from Thomas’ personal funds.

Mogilner said Midway planned to stay solvent and keep to its schedule of game releases. “At this point, our plans stretch out well into next year and beyond.”

Thomas’ attorney said this week that the investor had no plans to get involved in Midway’s management.

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