Atari's US operations file for bankruptcy protection

Atari SA's U.S. companies are looking to raise capital independently for future growth

Iconic video game company Atari has filed for bankruptcy protection in the U.S. in an effort to separate operations from parent company Atari SA, which is based on France and has also filed for bankruptcy.

Atari, Atari Interactive and two related companies owned by Atari SA on Monday filed petitions under Chapter 11 protection with the U.S. Bankruptcy Court for the Southern District of New York.

The filing sets the stage for a spin-off or sale of Atari SA's U.S. assets, which includes Humongous and California US Holdings. The U.S. companies will secure independent capital so it can continue to grow in the future, Atari U.S. said in a statement.

The U.S. companies have had approval to obtain US$5 million in financing from Tenor Capital, which specializes in funding distressed companies.

A spokesman for Atari in the U.S. declined to provide further comment on the bankruptcy protection filing or future operations.

Atari started off in 1972 and is known for game consoles like the Atari 2600 and video games like Pong, Asteroids and Centipede. Atari couldn't maintain the top spot in the console market with companies like Nintendo and Sega making superior products. Atari ultimately left the console market and today is focusing on game development for PCs, smartphones, tablets and for gaming consoles from Microsoft, Nintendo and Sony.

Since its inception, Atari's name and assets have changed hands multiple times, last landing with French game maker Infogrames Entertainment in 2001. The U.S. unit of Infogrames was later renamed Atari, and Infogrames Entertainment bought out Atari's assets in 2008. Infogrames Entertainment later changed its name to Atari SA.

Atari SA has also filed for bankruptcy in France due to inability to meet current liabilities and struggles to raise funds to continue growth, the French company said in a statement. The company blamed the challenging economy for its problems.

Trading of the company's stock on the NYSE Euronext Paris market has been suspended.

Atari SA has been reliant for funding from principal shareholder and lender BlueBay Asset Management, which wants to be repaid on its outstanding credit line. However, Atari SA has been unable to find a replacement to BlueBay as a shareholder and principal creditor.

"In light of the current situation with BlueBay, we have decided to take what we think is the best decision to protect the Company and its shareholders. Through these ongoing procedures, and especially the auction process in the U.S., we will seek to maximize the proceeds in the best interest of the Company and all of its shareholders," said Jim Wilson [CQ], CEO of Atari SA, in the statement.

Filing for bankruptcy protection is a way to protect Atari's U.S. operations from creditors, and also from financial obligations of its parent company, said Elizabeth Nowicki [CQ], a professor at the Tulane University School of Law.

"Far fewer would be willing to invest if it is subject to the French parent company," Nowicki said. Assets tied to Atari's U.S. operations are frozen, though daily operations should continue normally.

With bankruptcy protection, it could also become easier for Atari's U.S. operations to raise capital, Nowicki said.

"The interesting thing is what is going to happen from here," Nowicki said, adding that it is likely that Atari's U.S. assets may be bought out by private investors.

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