Electronic Arts NASDAQ:EA bondholders may have gained a new advantage after Fitch withdrew its investment-grade rating on the notes linked to the company's planned $55 billion all-cash leveraged buyout. The deal, backed by Silver Lake, Jared Kushner's Affinity Partners and Saudi Arabia's Public Investment Fund, has already triggered a months-long fight over whether investors should be repaid at a premium. Bondholders argue the rating change could matter because EA's change-of-control covenants may require a premium payout if the notes lose investment-grade status.
At the center of the dispute is defeasance, a technical debt tool where a company sets aside high-quality securities such as Treasuries to fund future interest and principal payments. EA's buyers and adviser JPMorgan Chase are trying to repurchase the notes, while bondholders advised by Akin Gump and Houlihan Lokey see Fitch's move as a key step in their favor. The consortium, however, reportedly views the investment-grade rating as helpful but not required, arguing defeasance could invalidate the covenants because the notes would be prepaid.
The standoff began in February, when EA launched a tender and consent solicitation for bonds due in 2031 and 2051 below the 101 change-of-control clause. The consent deadline has been extended multiple times as the deal still awaits regulatory approval, with no engagement between the parties reported so far. The bondholder group reportedly controls 75% of the 2031 notes and 90% of the 2051 notes, giving investors a potentially strong position as the dispute continues.