Electronic Arts bondholders alleged a $1.4 billion debt default, escalating a dispute over whether the videogame maker must pay them off at a premium after going private in the largest leveraged buyout of all time.

An investor group notified the company of the alleged default following the completion of EA's take-private by a consortium including Saudi Arabia's Public Investment Fund, private-equity firm Silver Lake and Jared Kushner's Affinity Partners. Bondholders asserted they must be repaid at 101 cents on the dollar, a common redemption premium after a corporate borrower undergoes a change in control, according to a bondholder communication sent last week and reviewed by WSJ Pro.

EA didn't pay the change-in-control premium after its buyout closed in August, instead attempting to defease the bonds by setting aside U.S. Treasurys to cover future interest and principal payments.

Representatives for EA and its owners didn't immediately respond to a request for comment. JPMorgan Chase, which has advised EA's buyers and committed $20 billion in debt financing for the buyout, also didn't immediately respond.

Change-of-control premiums are designed to protect investors from credit quality deterioration when a new owner buys the business and levers up its capital structure. In EA's case, the obligation to pay the premium takes effect after a change in control if the bonds also lose their investment-grade credit ratings.

Rather than paying the 101-cent put, EA pursued a defeasance strategy for a pair of $750 million bonds it previously issued, one due in 2031 and the other in 2051. The company took steps to back the bonds with Treasurys and keep an investment-grade rating that reflected those risk-free government securities.

Bondholders revolted, signing a cooperation agreement pledging to act in unison and retaining law firm Akin Gump Strauss Hauer & Feld and financial adviser Houlihan Lokey. A small portion of the outstanding securities were tendered to the company under an offer it rolled out in February. But the company had trouble obtaining an investment-grade rating on the $1.4 billion that remained outstanding. Moody's withdrew its rating on the bonds, and S&P indicated it would rate them high-yield, reflecting the additional debt on EA's balance sheet following its buyout.

EA also sought a score from Fitch Ratings, which initially said it expected a high-quality grade for the bonds before saying in June that it wouldn't deliver a final rating.

The Treasurys set aside for the bonds could cover future scheduled payments of interest and principal, but would likely be insufficient by several hundred million dollars to repay investors if EA were to default on its payment obligations and the bonds were accelerated, according to people familiar with the matter.

EA recently indicated that it obtained an investment-grade rating on the bonds from another credit-ratings firm, Egan-Jones, the people said. An Egan-Jones representative declined to comment.