Cirque files for creditor protection as existing shareholders make restructuring bid

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Cirque du Soleil filed for creditor protection on Monday and unveiled a plan that would see its current owners and the Quebec government inject US$300-million to restart the entertainment company, while paying lenders a fraction of what they are owed.

In what is expected to be one of many high-profile corporate restructurings brought on by the pandemic, Cirque lawyers asked the Quebec Superior Court to oversee a recapitalization of the Montreal-based company under the Companies Creditors Arrangement Act, known as CCAA. Cirque announced that its three current owners – Texas-based private equity fund TPG Capital LP, China-based Fosun Capital Group and the Caisse de dépôt et placement du Québec – would contribute US$100-million and continue to control the business.

Investissement Québec, a provincial agency, will provide an additional US$200-million loan as part of a plan to reopen the company, which shut down its shows in March due to the novel coronavirus. The Cirque-backed proposal becomes what is known as the primary bidder, or stalking horse bid, and any other potential buyer will need to offer better terms.

Early in June, Cirque invited takeover bids and drew multiple offers, including one from founder Guy Laliberté and a recapitalization plan from the company’s lenders, who are owed a total of US$1.5-billion. Quebecor Inc. and Feld Entertainment, a U.S.-based live-show production company that began with the now-defunct Ringling Bros. and Barnum & Bailey Circus were also interested in Cirque. On Monday, Cirque said in a press release that the TPG-led submission “was notably the sole fully documented and binding bid received, allowing the company to meaningfully advance toward an eventual restart by launching the in-court process immediately.”

The TPG-led consortium proposes paying US$15-million to 3,480 Cirque performers and employees who were laid off when the company turned out the lights, and an additional US$5-million for Cirque contractors who have not been paid for their services. The restructuring plan would see Cirque’s head office remain in Montreal, and the existing executive team remain in place.

Cirque chief executive officer Daniel Lamarre said the court filing and additional US$300-million of capital “provide a path for Cirque to emerge from CCAA protection as a stronger company.” In a press release, he said: “I look forward to rebuilding our operations and coming together to once again create the magical spectacle that is Cirque du Soleil for our millions of fans worldwide.”

The stalking-horse bid would see TPG consortium end up controlling 55 per cent of Cirque’s equity. Cirque lenders – mostly U.S. and Canadian private equity funds – would receive US$50-million in cash, US$50-million in new, unsecured bonds and a 45-per-cent equity interest in the company. Cirque said in a court filing the restructuring values the entire company at US$420.25-million. Sources working with Cirque lenders said Monday they plan to oppose the TPG-led offer in the Quebec court, but declined to offer specific details. Ernst & Young Inc. is running the restructuring process, which is expected to play out over several months.

The TPG consortium bought Cirque from Mr. Laliberté in 2015 for US$1.5-billion and subsequently borrowed money to create new shows and acquire rival theatre troupes, such as Blue Man Group. Until the pandemic, Cirque shows in Las Vegas and touring companies around the globe generated US$950-million annually in sales, according to a recent report by credit rating agency Moody’s.

If venues remain dark, Moody’s estimated in March that the company faced US$155-million cash shortfall this year, with more red ink flowing if Cirque is forced to refund ticket sales. Moody’s warned three months ago that the company was likely to file for creditor protection.

Cirque reopened a show in China called Land of Fantasy in early June, and the company is working with Las Vegas casino owners to reopen shows. Cirque generates about 35 per cent of its revenue from its permanent shows in Las Vegas, through a partnership with hotel and casino operator MGM Resorts International. The shows include O, a water-themed show at MGM’s Bellagio Hotel, and Ka at the MGM Grand. Both hotels are now accepting reservations after closing their doors in March.

Founded in 1992 from offices in Dallas and San Francisco, TPG has approximately US$70-billion of assets under management, making it one of the largest U.S. private equity funds. TPG owned 55 per cent of Cirque prior to the restructuring, with Foson holding 25 per cent and the Caisse at 20 per cent. The trio are expected to hold the same percentages of their positions in Cirque, while owning a total of 55 per cent of the company, if their stalking-horse bid goes forward.

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