CDPQ's Cirque du Soleil Show?
The private equity giant that rode Cirque du Soleil to the brink of bankruptcy now wants to share in the spoils, The Post has learned.What a mess, it's obvious TPG, CDPQ and Fosun International are trying to avoid a costly bankruptcy which will wipe out their equity stake.
Texas-based TPG Capital has positioned itself to make money from a highly anticipated Cirque du Soleil bankruptcy by turning itself into a lender in a last-minute maneuvering that has the company’s existing lenders crying foul, sources said.
On March 30, the entertainment company, which boasts TPG as its controlling shareholder, moved the majority of its worldwide trademarks to a brand-new entity, a senior lender told The Post. The next day, the Montreal-based company — known globally for its flashy acrobatic and aerial acts — missed an interest payment on its $900 million senior debt, setting the stage for its bankruptcy, according to reports and sources.
What happened next is key: TPG and other Cirque shareholders — including Caisse de Depot et Placement du Quebec, Canada’s second-largest pension fund, and Shanghai-based Fosun International Ltd. — provided Cirque with $50 million in emergency financing.
Instead of issuing the loan to the company at large, they directed it to the new trademark unit, a move that instantly bolstered their status in bankruptcy, sources said.
As mere shareholders, TPG would have been forced to stand behind existing lenders in a bankruptcy. Likewise, if it had loaned the larger company millions, it would have been forced to take a backseat in a bankruptcy, experts said.
While there’s no indication that TPG’s aggressive maneuvering is illegal, lenders say they could contest the transaction in court because it was done at a time when the company knew it was going to default on its existing debt.
“TPG will use the interim financing to advantage themselves” in bankruptcy, the peeved senior lender told The Post. “It’s very aggressive.”
“Greed is what it is,” said a restructuring lawyer familiar with the issues but not working on the case, who questioned the shareholders’ “right to transfer an asset away from lenders right on the verge of bankruptcy.”
TPG, run by billionaires David Bonderman and James Coulter, bought Cirque in a 2015 deal that valued the entertainment giant at $1.5 billion. TPG walked away with a 60-percent stake, Caisse and Fosun took smaller stakes, while Cirque’s accordion-playing, fire-eating co-founder, Guy La Laliberte, grabbed 10 percent, which he later sold to Caisse.
The entertainment company, which got its start with a ragtag team of street performers, was loaded down with a towering $1.2 billion in debt in the deal. And while it was profitable before coronavirus lockdowns crushed ticket sales, it only had $20 million of cash on its balance sheet and access to an $85 million credit line, according to Moody’s Investors Service.
By early March, after closing its show at the MGM Grand in Las Vegas among others, Cirque announced temporary layoffs for 95 percent of its 4,679 workforce — and that was before the pandemic drained the money it needed to keep the lights on and pay off its debt
After failing to make its interest payment at the end of March, the company officially defaulted on its debts, the company told The Post.
In a statement, TPG defended its actions by saying the creation of the subsidiary was “recommended by the independent transaction committee” of the company’s board “to establish a structure that would ensure Cirque could seek and receive emergency financing, which would otherwise be unavailable given the continued disruption brought on by the COVID-19 pandemic.”
Indeed, the subsidiary undoubtedly increased the chance of favorable loan terms by putting the new lenders on par with everyone else. But TPG’s existing lenders also claim they have offered $100 million in emergency funding that was denied, the lender source said.
Although TPG offered its loan at a slightly lower interest rate of roughly 5 percent, existing lenders were not given the opportunity to make a counter offer, this person added.
Cirque du Soleil declined to comment on the claim, saying only that an independent committee “concluded that the financing proposal of Cirque’s existing shareholders was the most favorable.”
Peeved lenders plan to present the board with a new $50 million loan at an even lower interest rate, they said. If the company accepts it, they will regain control of the bankruptcy and TPG and its co-investors once again stand to lose the $630 million they coughed up to buy the company.
If the board rejects the proposal, the lenders “will use the response to try to prove that the board should not be trusted,” explained Jones Day’s chief bankruptcy lawyer Bruce Bennett, who is not involved in the process.
But the lenders aren't about to give up and if they get their way, Cirque du Soleil will file for bankruptcy and TPG, CDPQ and Fosun will lose their equity stake.
Cirque du Soleil has received a lot of media attention lately. The New York Times had a feature article asking whether the company will rise again:
Even before the pandemic, the sprawling company was struggling with bloat and creative fatigue after a consortium led by an American private equity firm acquired it in 2015, and accelerated a debt-fueled global expansion spree.It now looks like the fate of the Cirque lies in the hands of financial contortionists.
Now, with no certainty on the timing of a coronavirus vaccine or when cities will allow large public gatherings again, some are asking whether Cirque can survive.
“No one had ever modeled what we would do if we lost 100 percent of our revenue,” said Mitch Garber, Cirque’s chairman, comparing the pandemic to the Great Depression for the live entertainment industry. “We can’t function without fans.”
It is hard to overstate the hold that Cirque du Soleil has on the Canadian and global imagination.
The Montreal-based circus originated in the 1980s when a group of Quebec performers, stilt-walkers and fire-breathers, including the Cirque’s accordion-playing co-founder Guy Laliberté, delighted local residents on the shores of the St. Lawrence River.
Born in 1984, its animal-free mix of awe-inspiring acrobatics, dance, lavish costumes, live music, high-technology stagecraft and narrative whimsy created a new vision of what a circus could be.
Before the coronavirus outbreak, its seven shows in Las Vegas alone — including the critically-acclaimed “Ka,” featuring battle scenes 70 feet in the air, and the water-themed extravaganza, “O” — drew some 10,000 people nightly. The Cirque had more than $1 billion in revenues last year — although now it also has nearly $1 billion in debt.
Today, the circus’s normally frenetic costume-making atelier in Montreal, which occupies the length of a city block and produces 18,000 painstakingly tailored costume parts each year, sits eerily empty. Half-sewn wigs and unfinished masks are scattered on work stations, along with half-drunk cups of tea.
Gabriel Dubé-Dupuis, the creative director of two recent Cirque shows, “Cosmos” and “Exentricks,” has worked 23 years for the circus, where his father was a famous clown. He said he was owed tens of thousands of dollars.
“This is a business where circus artists risk their necks each night and if people aren’t paid, it creates a crisis of confidence,” he said.
On March 18, Moody’s Investor Service downgraded Cirque’s credit rating to near junk status, citing a “high risk” that it would default on its debt. Québecor, a Quebec telecommunications giant, recently expressed interest in buying Cirque but was coolly received.
Mr. Laliberté, Cirque’s poker-loving billionaire co-founder, also floated the possibility that he would get into a “wrestling match” to rescue Cirque. But people familiar with talks over Cirque’s future said he had sold his shares in the company and was unlikely to buy it back.
Daniel Lamarre, Cirque’s chief executive, said he initially thought the health crisis would be contained to China, where Cirque was forced in late January to close its recently opened show “The Land of Fantasy” in Hangzhou, a keystone of its vaunted China expansion.
But he recalled that, at the beginning of March, just minutes after a crisis meeting in Montreal, one city after another across the world began to shut down. As borders closed, Cirque had to race to load big-top equipment onto giant cargo planes and repatriate 2,000 employees.
“Our world changed overnight,” he said. “When I got the call on March 14 that we would have to close all seven shows in Las Vegas, the reality sunk in.”
Image
Mr. Lamarre said Cirque was considering all options including seeking bankruptcy protection. A recent injection of $50 million from its shareholders had bought some time.
He said he was optimistic the company would bounce back, buoyed by its glittering brand and a public zeal for live entertainment after months of confinement. Cirque was already in talks with its Korean and Chinese partners about reopening shows.
Meanwhile, he has new reading matter: studies about coronavirus vaccines.
“We’re probably talking about a year from now before going back to normal,” he said.
But for all his bullishness, some critics say that Cirque’s problems predate the pandemic and that its groundbreaking artistry has given way to facile story lines and kitsch spectacle, like acrobats in frog costumes.
In 2015, Mr. Laliberté, who became Canada’s first tourist to space in 2009, sold his majority stake to investors led by TPG Capital, the American private equity firm, for $1.5 billion. Cirque’s other shareholders are the Chinese investment company Fosun and a Quebec pension fund.
The company has since spent $550 million on acquisitions, creating new shows and refreshing existing productions.
But while triumphs like the revival of the Cirque classic “Alegria” have enchanted, there have also been big stumbles, including an ill-fated foray into New York.
Its live-action Las Vegas show “R.U.N,” which cost $60 million to develop, closed in March after just five months, weighed down by banal stunts and fight scenes.
“Over the last few years, there has been a shift toward profits at the expense of creativity,” Mr. Dubé-Dupuis, the Cirque veteran, said.
Now, retrenchment seems inevitable.
“We don’t know how Cirque can make money or not lose too much money if one of every four seats in a theater is empty,” Mr. Garber said.
The pandemic has also challenged Cirque’s small army of superhuman circus artists.
“There aren’t a lot of LinkedIn listings for unemployed contortionists,” Mr. Garber observed.
I must say, I feel terrible for the artists that stick their neck out every night to perform.
Today, the Montreal Gazette reports that a group of more than 60 artists wrote an open letter saying they are owed close to $1 million by the Cirque. They argue the organization has refused to pay them, even though all of the work they did for the Cirque was prior to the COVID-19 pandemic. The people in the group include acrobats, directors, stage designers, choreographers, lighting designers, technicians, and stage managers.
Interestingly, the Quebec government is in discussions with potential investors in the Cirque du Soleil, Economy Minister Pierre Fitzgibbon confirmed last Friday:
Fitzgibbon, who was speaking with opposition MNAs, would only say that the government would help the company recover, with the goal of keeping its headquarters in Quebec.Indeed, the Cirque du Soleil founder is considering participating in company's rescue:
Fitzgibbon said it would be “totally inappropriate” to publicize any details while discussions continue. But he said he’s “very conscious” of the use of public funds and promised to be “prudent,” “rigorous” and “completely transparent” when an announcement is made.
Liberal MNA Monsef Derraji asked Fitzgibbon to confirm a report from Bloomberg News that the Cirque was in discussions with Investissement Québec for a C$500 million loan. Cirque chairperson Mitch Garber said Thursday that the company had not asked the government “for one dollar of financing.”
The Cirque du Soleil has debts of more than US$900 million, and received emergency financing of US$50 million from its three main shareholders — American investment company TPG Capital (60 per cent), China’s Fosun Capital Group (20 per cent) and the Caisse de dépôt et placement du Québec (20 per cent).
The COVID-19 pandemic forced the company to cancel its 44 shows and lay off almost all its staff — about 4,700 people.
Québecor CEO Pierre Karl Péladeau has expressed an interest in buying the Cirque, and founder Guy Laliberté suggested this week he could be involved in saving the company, three months after selling his remaining stake in it.
Three months after selling his stake, Cirque du Soleil's founder is considering the possibility of getting involved in the rescue of the entertainment company that's been greatly weakened by the COVID-19 global pandemic.Guy Laliberté is absolutely right, he understands this business a lot better than anyone because it was his baby.
In an open letter sent on Wednesday, Guy Laliberte says the future of the acrobatic troupe will depend on patient investors who will resist the temptation to reopen too quickly.
The businessman predicts there will be a “battle royale” to rescue the Cirque, including current shareholders led by Mitch Garber, debt holders who took the risk of funding the Cirque, as well as various levels of government that wanted to keep the head office and jobs in Quebec.
He says the biggest threat to the Cirque's future are “sharks” who dream of buying it for “a song” and those with no experience in managing cultural organizations of this scale.
The Cirque du Soleil laid off 4,679 employees, or 95 per cent of its workforce, on March 19, and cancelled 44 shows around the world. It has a debt of $900 million.
Quebecor Inc. has expressed an interest in Cirque du Soleil and is ready to inject hundreds of millions of dollar despite not having access to the cirque's books.
“You can't win the Stanley Cup 36 years in a row, but with patience, heart and hard work, you can dream of holding it in your hands once again,” said Laliberte.
He also made off like a bandit, selling the Cirque du Soleil at the peak of the company's success and now, he might be pulling a Michael Jordan and return for a last dance to take this company back to another championship.
Let me be clear. Without Guy Laliberté, I wouldn't be betting big on the return of the Cirque du Soleil.
I don't know how this will play out but I hope it gets resolved soon and I hope Guy Laliberté regains control of the company he nurtured to international success.
I also hope CDPQ helps Laliberté regain control but I understand it's in a sticky situation right now with its partner, TPG.
What would I do if I was now running the Cirque? Easy, I would be doing shows and selling tickets for online viewing and targeting kids.
A bit like the NBA and MLB are doing, test the players, start playing in empty stadiums and arenas, and then sell viewing rights and get advertisers to back you up.
The Cirque du Soleil needs to strike deal with Netflix (documentary?) or Disney and get into survival mode to ride out this pandemic and start thinking outside the box because it could be years before it fills out theaters.
Most of all, it needs to take care of its most precious assets, the artists and workers at the core of this company's success.
So bring back Guy Laliberté, take care of the artists and workers, stop focusing on expansions and profits, focus on survival and thinking outside the box, adapt to the pandemic, embrace it and transform the Cirque into a pandemic resistant success story.
Do I sound idealistic and perhaps nuts? Maybe but if you're relying on the suits at TPG or Quebecor to bring this company back to its glory days, it might never see them again.
Below, Cirque du Soleil recently invited its fans from all over the world for a brand new #CirqueConnect special. Enjoy some of the best live show moments of Crystal and Axel, the very first on ice productions from Cirque du Soleil, and discover a new kind of performance as Cirque du Soleil meets the ice to defy all expectations.
Comments
Post a Comment