Holders of about $1.42 billion of notes due 2031 and 2051 are disputing a covenant defeasance completed after the take-private. Fewer than one in ten holders of either series sold back their bonds in the tender.
Private Markets · FinancialMarkets.com · October 6, 2026 · Tickers: EA
The leveraged buyout of Electronic Arts has produced its first public fight with creditors, and it centers on a mechanism that lets a borrower set aside the protections written into its old bonds.
A group of holders of Electronic Arts bonds due 2031 and 2051 has alleged that the video-game maker defaulted on about $1.4 billion of debt, escalating a dispute over whether the company must pay them off at a premium following its sale to a group including Saudi Arabia's Public Investment Fund and Silver Lake.
The defeasance
Electronic Arts laid out its position in a regulatory filing. After a tender offer, $681.17 million of its 2031 notes and $742.08 million of its 2051 notes remained outstanding, about $1.42 billion in total. The company then deposited U.S. government obligations into a trust to cover the remaining payments on those notes, a step known as covenant defeasance.
Under the terms described in the filing, once the deposit is made the company "may omit to comply" with certain covenants in the bond documents, and related events of default "shall be deemed not to be events of default."
Defeasance works by construction. Holders keep receiving their scheduled interest and principal from the trust, but lose the protections the covenants gave them, which can include limits on the borrower's actions and rights tied to a change of control. The dispute turns on whether that release was available in these circumstances, or whether the buyout entitled holders to be repaid at a premium instead.
The tender
The tender offer drew little participation. Each series originally had $750 million outstanding. Holders tendered $68.83 million of the 2031 notes, about 9.2%, and $7.92 million of the 2051 notes, about 1.1%. The rest chose to hold rather than accept the company's terms.
The $1.42 billion is the principal still outstanding. It is not the amount in dispute, which depends on the difference between the bonds' value as defeased paper and their value if repaid at a premium.
What each side holds
The company's position rests on the language of the indenture as described in its filing: once the trust is funded, the covenants fall away and so do the defaults tied to them.
The bondholders' position is that the defeasance did not cure their claim, and that the buyout itself created an obligation to pay them more than the scheduled payments the trust now covers.
Implications for other buyouts
Companies taken private with heavy new borrowing can leave legacy bonds outstanding. Covenant defeasance is one way to neutralize those bonds without buying them back at a premium. A successful challenge would raise the cost of that approach for future buyouts. A failed one would confirm it as a tool.
Next steps
A formal notice of default, a lawsuit by holders or trustee action would be the first concrete test. A response from Electronic Arts or its owners setting out their reading of the indenture would show whether the dispute heads to court or to a negotiated settlement.