Electronic Arts challenges creditor default claims following $55bn buyout

Electronic Arts (EA) has initiated court proceedings against creditors insisting on an early repayment premium, following its $55bn acquisition, which could potentially complicate the financial situation of the video-game producer due to around $18bn in debt, according to Bloomberg. The lawsuit was filed against bondholder trustee US Bank by EA, after creditors holding over $1.4bn of outstanding notes alleged that the company had violated its debt agreements by not making a required change-of-control payment.

This dispute emerged in the wake of EA's August acquisition by an investor consortium, headed by Saudi Arabia’s Public Investment Fund. The company maintains that there is no default because the bonds were given investment-grade ratings by Egan-Jones Ratings, which allows it to utilize a provision called defeasance. This mechanism involves using U.S. Treasury securities to secure future bond payments, potentially enabling EA to circumvent the estimated $250m change-of-control premium.

However, major credit rating agencies, including S&P Global, Moody’s, and Fitch, either assigned speculative-grade ratings or withdrew their assessments altogether. EA is reportedly seeking a court ruling that no default has occurred, arguing that creditor enforcement could disrupt its financing plans and activate cross-default provisions across the parent company's debt.