Funcom asks bondholders to defer company debts

As we’ve reported previously, Funcom’s financials aren’t in the best of shape, and as of this morning, the company is appealing to its bondholders to lend a hand in keeping the studio running.

The studio has summoned its bondholders to a meeting on October 26th in which they will vote on a proposal to reduce the conversion rate of each bond and extend the bonds’ maturity date for a year, giving Funcom more time to pay its debts. “The proposed amendments are intended to provide cash relief to Funcom N.V. in 2015 to allow for sufficient working capital,” the summons stated.

Funcom’s stocks have slid sharply in the wake of this news. You can read the relevant quote from the bondholders’ meeting summons after the break.

The bondholders’ meeting will be held on 26 October 2015 to vote for the following proposed amendments to the bond agreement as amended from time to time (as described in more detail in the attached summons letter):

(i) extension of the Maturity Date from 22 December 2015 to 15 December 2016;

(ii) adjustment of the Conversion Price from USD 0.37 per Share to USD 0.24 per Share;

(iii) introduction of a “Prepayment Option”, giving Funcom – under certain conditions – the possibility to redeem (all or a part of) the loans outstanding under the bond agreement.

As announced by Funcom N.V. on 13 May 2015 the proposed amendments are intended to provide cash relief to Funcom N.V. in 2015 to allow for sufficient working capital.

Source: Oslo Bors, NewsWeb, Reuters. Thanks, Pål.
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jencendiary
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jencendiary

solipsis How is it Funcom’s fault that you can’t read the region-specific labels? You don’t need Steam to use TSW, you know.

tobascodagama
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tobascodagama

playerxx If it were totally unprecented, Funcom probably wouldn’t be trying it.

As it stands, they’ve already convinced one of their other creditors to accept a similar arrangement. And there’s a good, rational argument for bondholders to do agree to the arrangement, if they believe Funcom’s financial analysts. Bondholders won’t be able to collect the full value of their bond if Funcom declares bankruptcy in two months, but they might be able to collect the full value if they wait another year.

Elvenmonk
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Elvenmonk

Wratts BrotherMaynard
The company I work for has been bought out several times last year alone. It doesn’t take 2 months for investors to investigate unless your business is just that bad.
Same with the company my friend works for, but change the year to 2013. He works for a game studio and they were bought out 5 times that year alone. It was kind of insane.

playerxx
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playerxx

Did this ever work? Company asks bondholders to defer company debts?

Koshelkin
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Koshelkin

kunda311 Koshelkin Severik The point was I wasn’t sure if you are refering to AoC as well. Besides that it seems we don’t have the same opinion I concur.

mysecretid
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mysecretid

Come on, Funcom, let’s get past this! Don’t let The Filth win!

kunda311
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kunda311

Koshelkin Severik How about you take it as opinion/personal preference? That occur to you yet?

I concur wholeheartedly – Funcom’s games are pretty rich in lore and world-building but rather lame when it comes to exciting action.

kunda311
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kunda311

ihatevnecks Spacecraft Yup… this statement didn’t pass the b.s. smell test.

TheChiefTurtle
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TheChiefTurtle

best of luck to Funcom !!

solipsis
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solipsis

These arrogant morons dig their own graves.
I’m from Asia. I bought a TSW key from Amazon a long time ago. While TSW servers itself is not region locked buying anything related to it on Steam is. Fucking idiots. DIE DIE DIE!

Tethyss
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Tethyss

Any other details or fundamentals on this ‘bond’ we could examine?

7BitBrian
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7BitBrian

tobascodagama ihatevnecks Spacecraft Yea pretty sure that guy up there was just putting out his opinion and thinking its fact. Evidence proves him wrong however.

paragonlostinspace
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paragonlostinspace

schlag sweetleaf paragonlostinspace Very good point. :)

Feydakin
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Feydakin

Good luck FunCom, we love you and we’re pulling for you!

SallyBowls1
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SallyBowls1

An as-if-you-cared financial explanation.

In a normal bond you give the company $1000 and they say they will give you $60 a year interest for ten years and then give you your $1000 back. These bond holders don’t directly care about the stock price. 

With a convertible bond, the company says we will give you below market interest rate but a chance to profit if the stock goes up. Say pays $40/year interest but also gives the bond holder the right to convert the bond into X shares. If the stock price stays the same or declines, the convertible bond is a worse deal for the bond holder than a conventional bond.  But if the stock increases until it is above 1000/X dollars per share, then the convertible bond holder takes the X shares, not the $1000 face value of the bond. If this passes, the bondholders would take stock instead of their principal if the stock price exceeds $0.24.

(i) Note that all bonds have a maturity when the principal has to be repaid.  And that is the immediate problem for Funcom, not the interest expense but they need to repay some bond holders this December and don’t have the funds to conveniently do so. They are asking for that to be extended a year.

(iii) is where tin-foil-hatters can up the speculation. If there were to be an acquisition, then perhaps this is to allow the new company the option to pay off the convertibles rather than have to deal with the complications.

tobascodagama
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tobascodagama

ihatevnecks Spacecraft And DDO, EQ1/2, GW2 now…

sydh
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sydh

TSW is one game I really hope can to continue on.

ihatevnecks
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ihatevnecks

Spacecraft Are you sure that’s the case for TERA, SWTOR, STO, Neverwinter, LotRO? Cause besides TERA, which I’m not even sure is F2P in other regions, none of those are heavy on asian playerbases.

Zulika_Mi_Nam
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Zulika_Mi_Nam

JakeDunnegan Zulika_Mi_Nam yw – I just started doing it instinctively to try to see the big picture.  I have heard about their troubles before, but I never looked any further than a headline.  Dat market cap – sheesh!

Spacecraft
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Spacecraft

F2P MMOs are not sustainable in a western market. All the F2P MMOs that are popular in the west are kept afloat by the main Asian customer base.

schlag sweetleaf
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schlag sweetleaf

paragonlostinspace schlag sweetleaf I wish Funcom the best and hope they turn it around. Sometimes a little levity can take the edge off a grim situation…

JakeDunnegan
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JakeDunnegan

AilsaN10 I agree – BUT – a kickstarter tends to be a much bigger splash in the pond, as it were. An attention getter. One or 100 people buying some Funcom points aren’t nearly as impacting as a Kickstarter where – hey, maybe some of the other gaming companies who HAVE had successful kickstarters can refer a bunch of people who would be happy to donate, and/or quite possibly, help “one of their own” with a bit of cash here or there (in addition to posting a message to their own fans). 
Say what you will, but I rather think Funcom, all things considered, is one of the better loved studios out there, and it’s a shame to see it come to this. :/

phoenix0401
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phoenix0401

breetoplay SallyBowls1 Koshelkin Wratts is right. Another key part to this — which may be mentioned elsewhere — is that in the event of a bankruptcy bondholders, by law, are paid first and only if there is anything left over do stockholders get anything. So, really, they could change the conversion rate to 1 penny for 10 shares and bondholders would still be wary of converting. The company is in so much trouble that bondholders are in loss prevention mode.

JakeDunnegan
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JakeDunnegan

Zulika_Mi_Nam Not sure if you did that or not, but thanks for posting – neat in an informative/”how stock can be impacted by game releases” kind of way.

zoward
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zoward

*Sigh*, I spent $30 in their cash shop this morning, mostly to throw money at Funcom since I love The Secret World.  Got myself the latest issue and a nice new hoverboard … which I’m not high enough level to activate yet.  Hope I get a chance to see it.

JakeDunnegan
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JakeDunnegan

schlag sweetleaf :(

GleefulGrognard
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GleefulGrognard

tobascodagama agemyth Just has to be enough to appeal to investors.
I see it as a portfolio work, they want to show that they are efficient and skilled in other areas and can turn a profit.
They will then probably want to sell themselves as a packaged deal “we have existing property and IP and can put out successful alternate projects in short order”

paragonlostinspace
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paragonlostinspace

schlag sweetleaf  LOL! Damn man, I’m feeling bad for them but then you make me laugh and I feel guilty laughing as well! LOL

Wratts
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Wratts

BrotherMaynard Wratts Possibly, I think it varies.  I’ve only been part of one buyout team, and that iirc took us 6 weeks or so to assess, meet with the target and the bankers, do our due diligence, and then decide to pass on.  
My understanding from people I’ve known in private equity is that no two deals are the same, some are very quick and some take a while

BrotherMaynard
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BrotherMaynard

Wratts It was announced on 10 August, so a little over 2 months. I think it would take a bit longer for the public to learn if there is interest, any potential buyer would usually like to do a due diligence and then perhaps develop their own plan to transition Funcom’s portfolio to the new environment (and how to bring them back into calmer waters), then start negotiating the details of the contract… I’m not an expert on this, so I don’t really have an idea how long it usually takes, but I imagine it would be longer than 2 months, if they do it properly.

Wakkander
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Wakkander

CastagereShaikura Wakkander I seem to vaguely recall liking the AoC combat, it was just the game was kinda dull once you got off the tutorial island. Been a long time since I played however.

schlag sweetleaf
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schlag sweetleaf

Age of Conanticipatory Breach

Wratts
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Wratts

SallyBowls1 Wratts I could be behind on my information, but my understanding is they wouldn’t hit a delinquency until next year, which is why they’re trying to modify payment terms now.  So next year they’re not able to make a payment, and then would need to enter bankruptcy and probably asset auction.  Unless I’m missing something there would be no reason to do it before they can’t make a payment.

Wratts
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Wratts

breetoplay SallyBowls1 Koshelkin The way I read it, they’d actually be trying to encourage conversion:
(ii) adjustment of the Conversion Price from USD 0.37 per Share to USD 0.24 per Share;

You lower the conversion price you’re making it cheaper to buy equity.  As Sally pointed out, that would obviously be great for FC since it eases their cashflow burden on bond payouts

crawlkill
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crawlkill

blehhh. well, we all knew it was coming.

breetoplay
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breetoplay

SallyBowls1 breetoplay Koshelkin This is a really good point and you could very well be right. (Though why wouldn’t they be making conversions more desirable or prompt no movement there instead of making them less desirable?)

SirMysk Needs (More) Coffee, Probably
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SirMysk Needs (More) Coffee, Probably

evolv_monbly groo the wanderer Not just bacon, but special Amazon same-day air delivery bacon! Arrives fresh (still alive).

SallyBowls1
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SallyBowls1

breetoplay Koshelkin No big deal but I am sure “discourage bondholders from converting their bonds into stock ” is not correct.  As my finance professor said, no company without debt ever went bankrupt.  If all the bondholders were to convert to stock the crisis would be instantly over – No debt would be due in December and those interest payments would go away. So Funcom management, if not existing stockholders, would love conversions of could-sink-the-company debt into equity.

Disclaimer: I don’t due convertibles, and experts feel free to correct me. But I am not sure if they are discouraging conversion.  If you have a $1000 bond with a conversion of  $0.37 then I think a bondholder converting a $1000 bond into stock would have gotten 1000/,37 = 2702.7 shares and now will get 1000/0.24 = 4166.66 shares,

Koshelkin
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Koshelkin

breetoplay Koshelkin I see. Thanks for the explanation.

evolv_monbly
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evolv_monbly

breetoplay SallyBowls1 mainstream gaming sites? you mean people read something other than massivelyOP? wtf?

evolv_monbly
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evolv_monbly

Has a game ever been bought post sundown/ closing and been able to turn around? I know hellgate london found a new home but i’m not sure it’s done well to stay afloat.

breetoplay
Guest
breetoplay

SallyBowls1 Has to be Park buzz, yeah? They have been hyping the mainstream gaming sites’ posts on it all week.

evolv_monbly
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evolv_monbly

groo the wanderer Bacon?

Noble_Einherjar
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Noble_Einherjar

This is disappointing news. Almost makes me want to play more Age of Conan while I have the chance. .. and I figure the “almost” is a big part of the problem.

wjowski
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wjowski

Secret World is just about the only MMO I’ll even touch nowadays.

evolv_monbly
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evolv_monbly

Koshelkin interesting note: us citizens going to boot camp are usually semi-forced to buy bonds (which is a good investment, if a small return investment) Well the vets of WWI tried to sell their bonds early during the great depression. the marched on the white house, and set up a make shift city in DC, and wouldn’t leave until they were given the money owed them by the government. In turn, president hoover called in the 101st airborne to use deadly force on them, to get those damn poor veterans off his lawn!!!  

https://en.wikipedia.org/wiki/Bonus_Army

breetoplay
Guest
breetoplay

Koshelkin In a nutshell, Funcom asked its bondholders for another year before it pays out its bonds. It’s also trying to discourage bondholders from converting their bonds into stock by asking them to reduce the conversion value of those bonds. The goal is basically to have enough money over the next year to turn that money into more money (say: with another game launch) before the debts are due again. If Funcom doesn’t get this deferral and doesn’t have cash on hand to pay out the bonds this December and/or can’t find a buyer for itself in time, it might be forced into bankruptcy.

evolv_monbly
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evolv_monbly

Koshelkin people buy bonds at a price and they gain value over time. usually they can not sell back bonds until a certain date for the full price. funcom is asking the people that bought to hold off on cashing them in, so they have a longer time to hold onto the cash that they owe the bond holders and use it to pay off debt, while trying to turn profit to pay more debt + the bond holders (which is additional debt)

Koshelkin
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Koshelkin

Anyone with some knowledge in that sector can explain to me what they are exactly trying to do?

Koshelkin
Guest
Koshelkin

A Dad Supreme I already had my money’s worth out of it. Like a million times. I don’t even regret the money I spent on top of that for clothing etc.

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