Cirque cred­i­tors set to re­ject offer, sources say

Vancouver Sun - - FINANCIAL POST - PAULA SAMBO and SAN­DRINE RASTELLO

Cirque du Soleil En­ter­tain­ment Group filed for pro­tec­tion from cred­i­tors after the coro­n­avirus pan­demic forced it to close shows around the world, trig­ger­ing a fight for con­trol of one of the best­known brands in live per­for­mance.

Cirque said it en­tered into a so­called stalk­ing horse agree­ment with its ex­ist­ing share­hold­ers, in­clud­ing TPG, for a US$300-mil­lion in­jec­tion to help restart the busi­ness.

The TPG-led pro­posal would see se­cured cred­i­tors get 45 per cent of the equity in ex­change for wip­ing out the vast ma­jor­ity of the com­pany’s debt.

But cred­i­tors are un­likely to ac­cept the terms of the TPG plan, ac­cord­ing to three peo­ple fa­mil­iar with the mat­ter.

A cred­i­tor group will likely come back with a for­mal counter-offer by July 10, one of the peo­ple said; it has al­ready drafted a non-bind­ing offer, ac­cord­ing to an­other one of the peo­ple.

The Mon­treal-based com­pany, which has about US$1.6 bil­lion in debt and other li­a­bil­i­ties, re­quested pro­tec­tion through the Com­pa­nies’ Cred­i­tors Ar­range­ment Act in Canada on Mon­day af­ter­noon.

The ap­pli­ca­tion is sched­uled to be heard by the Que­bec Su­pe­rior Court on Tues­day and the com­pany will also seek its im­me­di­ate pro­vi­sional recog­ni­tion in the U.S. un­der Chap­ter 15.

En­ter­tain­ment com­pa­nies that de­pend on large crowds were among the first busi­ness ca­su­al­ties of the virus.

Cirque du Soleil laid off 4,679 em­ploy­ees — about 95 per cent of its work­force — on March 19 after shut­ting down 44 pro­duc­tions to com­ply with gov­ern­ment or­ders around the world.

It has only one ac­tive show right now, in China.

Cirque ex­pects to emerge from the restruc­tur­ing process as a much 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, chief ex­ec­u­tive Daniel La­marre said in an in­ter­view.

Tour­ing shows could come back in 2021 if the virus sit­u­a­tion al­lows for it, he said.

The fil­ing starts the clock on a bid­ding process for con­trol of a re­struc­tured Cirque.

Que­becor Inc. and Cirque founder Guy Lal­ib­erte have ex­pressed in­ter­est in in­vest­ing in the com­pany.

“We know there are prob­a­bly five other par­ties that will be in­ter­ested to make an offer,” La­marre said.

“The good news to­day is that we know that some­one is com­mit­ted to en­sure the fu­ture of the com­pany. And within 45 days, we’ll know if some­one is will­ing to in­vest even more.”

The Que­bec gov­ern­ment’s in­vest­ment and lend­ing arm, In­vestisse­ment Que­bec, is pro­vid­ing US$200 mil­lion of the US$300 mil­lion to be in­vested by the TP­Gled group, which also in­cludes ex­ist­ing share­hold­ers Fo­sun In­ter­na­tional Ltd. and Caisse de Depot et Place­ment du Que­bec.

The group pro­poses to ac­quire sub­stan­tially all of the com­pany’s as­sets for a com­bi­na­tion of cash, debt and equity.

It says its offer has a to­tal value of US$420 mil­lion.

Cirque’s ex­ist­ing se­cured cred­i­tors would re­ceive US$50 mil­lion of un­se­cured, take-back debt in ad­di­tion to the 45-per-cent equity stake, ac­cord­ing to the pro­posal.

The cri­sis hit the 36-year-old com­pany just as it emerged from a string of ac­qui­si­tions, which helped it di­ver­sify from its orig­i­nal ac­ro­batic shows but also put it deeper into debt.

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