Cirque du Soleil lenders offer to swap $1-billion of debt for control of company

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Lenders to the Cirque du Soleil offered to invest an additional US$300-million in the iconic, but cash-strapped entertainment company as part of a takeover bid that also guaranteed the head office would remain in Montreal.

As Cirque reached a self-imposed deadline on Monday for initial offers from potential buyers, a group of lenders owed approximately US$1-billion offered to swap their debt for a 100-per-cent interest in the company, according to sources working with the consortium. The Globe and Mail agreed not to identify these sources because they are not authorized to speak for the creditors or the company.

In a letter Monday to Cirque’s board of directors, the lenders offered to put in an additional US$300-million to bring back employees and artists, and prepare to reopen Cirque shows that closed in mid-March because of the COVID-19 pandemic. Cirque subsequently missed interest payments on its debt. While Cirque’s creditors are initially offering to take control of the company on their own, the board letter states the lenders are open to partnerships with Quebec investors, and that the head office would remain in Montreal.

Cirque’s lenders are mainly U.S. credit and distressed debt funds, many of which have the financial firepower to keep the company afloat until venues in Las Vegas and other entertainment destinations can safely raise the curtain on shows. The takeover offer came from a group of more than a dozen creditors representing the majority of the company’s lenders.

Cirque is owned by three private-equity investors: Texas-based TPG Capital LLP, China’s Fosun Capital Group and Caisse de dépôt et placement du Québec. Under the creditors’ offer, these three investors would be wiped out. The TPG-led group spent US$1.5-billion to acquire Cirque from founder Guy Laliberté in 2015. In recent weeks, Mr. Laliberté and Montreal-based Québecor Inc. have said they plan to bid for Cirque.

Over the past two months, Cirque chairman Mitch Garber and credit-rating agencies have raised the possibility of the company filing for creditor protection to shed some of its debts. The move could result in significant losses for existing lenders.

Cirque spokeswoman Caroline Couillard declined to comment Monday about buyer interest in the company. She said the company continues to evaluate a resumption of shows in Las Vegas as Nevada’s reopening plans evolve.

Cirque creditors made their move on Monday after more than two dozen potential bidders signed confidentiality pacts to win the right to examine the financials of the cash-strapped company, a source close to the process said. Twenty-nine parties obtained access to Cirque’s books, although no more than 10 are expected to follow through with formal offers to buy or refinance the company, the source said Monday.

U.S.-based investment banking firm Goldman Sachs Group and Feld Entertainment, a U.S.-based live show production company that began with the now-defunct Ringling Bros. and Barnum & Bailey Circus, are among those who signed non-disclosure agreements to look at Cirque’s financials, the source said. Québecor Inc. also won access, the source said.

The Globe has agreed to grant this source confidentiality because they were not authorized to speak on the matter publicly.

The high level of initial interest in Cirque du Soleil reflects the company’s strong brand recognition and ability to draw higher-income customers to its live entertainment. Prior to the pandemic, Cirque sold US$950-million of tickets annually to its performances. With venues closed, credit-rating agency Moody’s said the company faced a US$155-million cash shortfall this year. But with Las Vegas resorts welcoming customers again after a nearly three-month shutdown, interest in Cirque signals many investors see a path to the company once again generating substantial cash.

“There is clearly value in the brand, in the existing networks and relations with strategic partners as well as in the intellectual property of Cirque du Soleil,” said Patrick Leroux, a Concordia University professor who has written on the industry.

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 again, according to their websites.

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