National Post (National Edition)
TPG’s Cirque du Soleil proposal is doomed, creditors say
REJECTED OFFER
Creditors of Cirque du Soleil say a proposal by TPG and other shareholders to restructure the live performance company is “doomed to fail” and there is no chance they will accept it.
Montreal-based Cirque du Soleil Entertainment Group filed for protection from creditors in Canada on Monday after the coronavirus crisis forced it to close shows around the world. TPG, China’s Fosun International Ltd. and the Caisse de Dépôt et Placement du Québec, Cirque’s shareholders, made a proposal that would refinance the company and leave creditors with a 45-percent stake in exchange for wiping out most of its debt.
“Pursuing approval of the proposed shareholder transaction (on a stalking-horse basis or otherwise) is doomed to fail,” said the ad hoc committee of creditors, which represents holders of about three-quarters of the US$885 million principal of first-lien loans and twothirds of the US$150 million second-lien creditors, in a document submitted Tuesday for its bankruptcy protection process.
The group questioned the timing of the company’s filing.
“We see no reason why they didn’t engage in negotiating a definitive agreement with our group and chose to enter into an agreement with the out-of-the-money equity holder TPG for a transaction that they knew their secured creditors had already rejected,” said Tuck Hardie, a managing director at Houlihan Lokey Inc., which is acting an adviser to the creditors’ committee.
“The ad hoc group is excited and is financially motivated to see the successful relaunch of Cirque and its place in the Montreal and
Quebec business community.”
On June 8, the creditors’ group presented an offer to inject US$300 million — an amount that could be increased to US$375 million — into Cirque under a bankruptcy restructuring that also would convert the company’s debt into a 100-per-cent ownership stake, according to a letter seen by Bloomberg. Following the transaction, first-lien creditors would also hold US$600 million in new debt.
The committee of creditors asked the Quebec court not to schedule a hearing to consider the shareholders’ proposal, and instead direct the parties to negotiate a litigation timetable. The creditors plan to work with the company to attempt to reach an agreement on its proposal, including to serve as a stalking-horse bid if necessary, it said in the document filed Tuesday.
The judge in the case set the next hearing for Friday, July 10.
The battle between Cirque creditors and shareholders has another player — the Quebec government, which wants to ensure Cirque’s head office remains in Montreal. The government agreed to lend US$200 million to the TPG group to help relaunch Cirque, if that group can retain control of the company.
Quebec considered that Cirque may never grow back to its pre-pandemic size when it agreed to that loan, according to the province’s economy minister. While the skills and creativity behind the Cirque are alive, the number, shape and size of shows may not be the same in the wake of the crisis, Pierre Fitzgibbon said in an interview on BNN Bloomberg.
That risk underpins the government’s condition with TPG that a restructured Cirque has a “much more conservative” debt structure, he said. ”We tailored that program of assistance in the context where perhaps it won’t be back to where it was.”
Cirque expects to emerge from the restructuring process as a leaner entity with about 1,000 employees initially. About 700 of them would be in Las Vegas, where the company earned about 40 per cent of its US$1 billion in revenue last year and where it hopes to open a show as early as November, CEO Daniel Lamarre said in an interview Monday.
Touring shows could come back in the spring if the virus situation allows it, he said.
“If you tell me one day there is a vaccine or people are no longer subject to infection of the virus, then the company will go back to its feet in a very short period of time,” Lamarre said. “Absent of that, we will have to go progressively.”