SAN FRANCISCO -- Southern California video game maker THQ said on Wednesday it filed for bankruptcy protection, and entered into an agreement with private investment firm Clearlake Capital Group for a potential sale of its assets, in a bid to tackle its financial troubles.
The assets to be sold include THQ's four studios and games in development. The filing was made in U.S. bankruptcy court in Delaware.
Shares of THQ, which were briefly halted before the announcement, plunged 74 percent to close at 36 cents on the Nasdaq on Wednesday.
"They're currently in default of one of their credit lines, so it's not a huge surprise," said Mike Hickey, analyst at National Alliance Capital Markets.
Product delays and poor-performing products in a videogame market that is struggling to reverse flagging sales "kind of circled in aggregate to lead to their demise," Hickey said.
The Agoura Hills-based company said Clearlake was a "stalking horse bidder" or a potential buyer chosen from a pool of bidders to make the first bid. This "allows other interested parties to come forward with competing bids," THQ said in a statement.
Foreign operations, including Canada, are not part of the bankruptcy filing, the company said.
Known for its wrestling and "Saints Row" games, THQ has been losing ground to Activision Blizzard and other larger rivals. Stockholders approved a 1-for-10 reverse share split of common stock in late June to raise the share price and avoid delisting.
THQ also said it has commitments from Wells Fargo and Clearlake for financing of approximately $37.5 million, subject to approval from court.
THQ, which has cut staff and shut noncore businesses in an effort to revive its business, has studios in Austin, Texas, and Champaign, Ill., as well as Canadian studios in Vancouver and Montreal.
Its studios and development teams will continue to operate during the sale process, the company said.
In a U.S. Securities and Exchange Commission filing last month, THQ said Wells Fargo warned the company on Oct. 16 that it had borrowed beyond the limits of its loan terms.
THQ then made a $5.6 million payment on the $21 million that it had borrowed in the quarter ending Sept. 30 in an attempt to regain compliance under its loan agreement. San Francisco-based Wells Fargo then informed the company that it was in default under the terms of its credit facility, according to the filing.
The company announced late last month that Wells Fargo Capital Finance had agreed to forgo action against the games publisher on any default on its $50 million credit facility until Jan. 15, 2013.
Executives announced on a Nov. 5 earnings call that they were postponing the release of several titles including its "South Park" game, increasing the company's need for capital.
The company also has $100 million in convertible notes that are due in August 2014.
THQ's market cap dropped about 72 percent to $2.7 million on Wednesday