Just when you would think things couldn’t possibly get worse for Midway, things may have just gotten a whole lot worse. The studio that gave us Mortal Kombat, Gauntlet, Joust, NBA Jam and Spy Hunter among other franchises may be going belly-up, and soon.

According to the Chicago Tribune, Midway could soon default on the $240 million debt they have accumulated, and the former arcade giant has a mere 50 days to scrounge together at least $150M of the $240M owed.

How Midway will do this is anybody’s guess since they only have about $10 million in cash – and that number is from Halloween. But all is not lost for Midway. Wedbush Morgan analyst and European Playboy* Michael Pachter says that Midway could survive this ordeal.

It means that because of the change of ownership from Redstone to Thomas, some of Midway’s creditors holding $150 million of debt are able to demand repayment in January. Midway expects this to happen, and hired Lazard to help them figure out how to refinance.

It’s really interesting, because the creditors cannot expect Midway to repay unless the company remains in business. If the creditors compel bankruptcy liquidation, they’ll get something, but arguably less than the full $150 million. Midway’s assets are worth something, but in this market, it is hard to figure out how much. As a comparison, THQ has an enterprise value of only $80 million, so Midway’s assets in liquidation would have to be worth twice as much as THQ’s (as a going concern) for the creditors to be repaid.

My guess is that Midway works out a deal with the creditors and remains in business, but they are going to have to start generating sustainable profits soon, or their creditors will become impatient.

The other real interesting thing is the change of control provision. While not uncommon, this one makes it clear that the creditors felt comfortable as long as [former owner Sumner] Redstone had skin in the game.

Interesting, but at the same time I don’t see how Midway can turn things around overnight. Midway has always seemed to lack the direction that other game publishers have had, seemingly just throwing a game out there and hoping people notice it. Hell, outside the MK games I don’t remember a big Midway game from the past few years.

Let’s hope for the best for Midway… and send me an email if they go up for grabs for something like $50 — I can swing that.

*Not really

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