Trion Worlds is known for publishing online games such as Archeage, Rift, and Defiance. With a history of layoffs over the past five years, it had been unclear to the public if the layoffs are the result of bad financial conditions, or if the layoffs were just a way to trim operating expenses by eliminating unnecessary positions.
Generally, it is fairly difficult to judge the financial health of a private company, as statistics such as net assets, profits, revenue and other figures are generally not available to the public. However, in a shareholder report released today for Fidelity’s Contrafund, the report listed a holding of convertible bonds in Trion Worlds, Inc.
The interest rate on the bond indicates that the company may be at significant risk of default. Not only is 12% an extremely high interest rate for bonds, but convertible bonds generally have lower rates than regular bonds, as it provides the bondholder the option to exchange the bonds for equity in the company. This makes convertible bonds more attractive to investors, as they have the upside advantage of equity, with the creditor advantage of bonds. The rate is especially high considering the short duration of the bonds.
If a company needs to offer interest of 12% on a convertible bond to lure investors, it is quite likely that the company has a high risk of default. For comparison, Tesla’s newly issued convertible bonds have a coupon rate of 5.3%, even with a B3 credit rating by Moodys, a rating that is considered junk/non-investment grade.
I was unable to dig up information on Trion’s Credit rating. However, for reference, CCC rated bonds and below, which are considered to be “extremely speculative” or worse, currently yield 10.62%. This data is based on the BofA Merrill Lynch US Corporate C Index.
This article should not be taken as financial or investment advice.
Edit: The CEO of Trion Worlds, Scott Hartsman, has responded via Reddit: