Atari Files For Chapter 11 Bankruptcy Protection To Save US Operations

"Pong" creator tries to separate itself from European parent company.

 @YannickLeJacq on January 21 2013 12:10 PM

The U.S. branch of the iconic game company Atari S.A. (EPA: ATA) has filed for bankruptcy protection in New York City, hoping that its American operations will be able to be separated from its struggling French parent company.

Atari Inc. and three of its affiliates -- Atari Interactive Inc., Humongous Inc. and California US Holdings Inc. -- filed petitions for Chapter 11 reorganization in an attempt to “separate from the structural financial encumbrances of their French parent holding company, Atari S.A. (formerly Infogrames S.A.) and secure independent capital for future growth,” the creator of the iconic video games “Pong” and “Asteroids” said in a statement Monday.

Atari went on to say that it expects to sell its assets within the next three to four months, including popular game properties such as “Pong,” “Asteroids,” “Centipede,” “Missile Command,” “Battlezone,” “Tempest,” “Test Drive,” “Backyard Sports” and “Humongous.”

Atari U.S. is also hoping to obtain court approval for $5.25 million in debtor-in-possession financing from funds managed by financial services firm Tenor Capital Management, the statement said.

Despite its pivotal role in the development of the modern video game industry, Atari has struggled to adapt to a changing marketplace now dominated by blockbuster home console titles like Activision Blizzard’s (Nasdaq: ATVI) “Call of Duty” franchise and casual mobile games like “Angry Birds.” Despite releasing revamped versions of many of its classic game properties, partnering with social gaming giant Zynga (Nasdaq: ZNGA), and announcing its first line-up of mobile games, the company has struggled to maintain profits in the last two years, netting $11 million in the 2012 fiscal year and just $4 million in 2011. Its revenue, meanwhile, fell 34 percent in the 2012 fiscal year, dropping 43 percent just a year earlier.

The L.A. Times reports that Atari U.S., if successful, could emerge from its bankruptcy filing free of the debts accrued by its parent company. The company’s growth within the U.S. game industry has apparently been stymied by what the L.A. Times called a “near total reliance” on BlueBay Asset Management, a London-based financial company that was keeping Ataria afloat with a $28 million credit facility. When that loan lapsed on December 31, 2012, Atari was left without the resources required to finish any of its new game properties currently in development.

“The Chapter 11 process constitutes the most strategic option for Atari's U.S. operations as they look to preserve their inherent value and unlock revenue potential unrealized while under the control of Atari SA," the company’s statement said.

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