Cirque du Soleil: now what?


And now ? What will Cirque do? The questions surrounding this institution resemble the sad song of Gilbert Bécaud.

Francis Vailles
Francis Vailles
The Press

The institution’s future looks very uncertain with Monday’s announcement. Cirque takes shelter from its creditors to avoid bankruptcy, in addition to confirming the dismissal of 3,500 people.

Cirque is dying, one might conclude, and the departure of these well-paid employees is very painful. On closer inspection, however, we see that Monday’s developments could ensure its survival, assuming, of course, that the planet will eventually defeat COVID-19 within a few months and that the shows will start again.

The reason for this relative optimism? Three major shareholders commit to an offer of 420 million US dollars, according to the legal document filed in Superior Court, transmitted to the media. Better still, this is probably a minimum, since an auction process is started at the same time, which will peak on August 14.

The 420 million offer to buy up most of Cirque’s assets is a seed bid (stalking horse), made by the current shareholders, the American TPG, the Chinese Fosun and the Caisse de depot.

Other offers could be analyzed by the court between July 17 and August 14. According to the legal document, five other offers have also been presented to Cirque, one of which comes from a group that holds most of Cirque du Soleil’s debt. This group would be led by the Catalyst vulture fund from Toronto, according to our information.

What exactly does the TPG consortium offer?

Of the 420 million US dollars, 300 million would be paid in cash into Cirque du Soleil. In addition to helping to revive Cirque once the pandemic has passed, these 300 million will be used to pay essentially three things, confirms Cirque’s chief financial officer, Stéphane Lefebvre.

First, a fund of US $ 20 million will be set up to help employees and independent artists. Second, the money will be used to repay the interim loan of $ 50 million made by lenders to keep Cirque alive two months ago. The loan was granted by a group of creditors led by Catalyst (initially, it was to be the TPG-Caisse-Fosun trio, but it was not.).

Third, the money will be used to cover the multi-million dollar liability owed, in particular, to Cirque ticket holders (refunds) and certain other critical suppliers.

What is clear is that out of the US $ 300 million, $ 200 million will come from Investissement Québec, the government’s investing arm. The three partners that are TPG, the Caisse and Fosun will contribute 100 million US dollars.

In short, Quebec advances two-thirds of the funds, in the form of a loan, and in exchange obtains a right to buy back the Cirque and maintain its head office in Montreal. For its part, the trio of shareholders puts in 100 million US dollars and obtains 55% of the shares in the new Cirque du Soleil.

As for Cirque’s current secured creditors, they would obtain 45% of the shares, in addition to being granted a small acknowledgment of debt of 50 million US.

I say small, because these secured creditors have a balance of US $ 885 million in loans to the Circus as of March 31, 2020, according to the legal document. Overnight, Cirque owed them only US $ 50 million, but in exchange, they would have 45% of the shares in the new Cirque.

It is not clear, but it can be inferred from the legal document that this offer to secured creditors corresponds to the difference between the global offer of US $ 420 million and the injection of US $ 300 million into the Circus.

The beauty of the offer, if accepted, is that the Cirque would have 300 million in its coffers to revive its activities and a deflated debt to only 250 to 300 million, mainly due to Investissement Québec.

As of today, however, a war has started on who will be the controlling shareholder. It could be the trio led by TPG, but they won’t be the ones to decide.

In fact, as soon as a company takes shelter from its creditors, it is the creditors, precisely, who have the final say. Legally, the offer must receive the approval of creditors representing two thirds of the value of the claims.

And who are these controlling creditors? A group formed by a dozen institutions led by Catalyst of Toronto, according to a recent report by my colleagues Vincent Brousseau-Pouliot and Richard Dufour.

Originally, Royal Bank and Bank of America were the secured lenders. But this debt has been sold on the market lately for around half of its value. And the group led by Catalyst would have bought 80% of this debt, which exceeds, therefore, the 66% required to have control of the bankruptcy process. They are said to have captured most of the debt for some US $ 360 million.

Will they accept this exchange? Or will they consider it insufficient? Will they try to push for a higher bid by August 14? Ultimately, the creditors will decide, although the Superior Court judge may have an influence.

How ? Ultimately, it is the bid that gives the most to the creditors that wins. But a Supreme Court decision in the BCE case a few years ago recognized a certain right for other stakeholders (stakeholders). Among these other parties could be employees, suppliers, the Montreal community, etc.

In other words, and although this possibility is slim, it is not impossible that features such as the maintenance of the head office in Montreal and its impact on creators and jobs are considered in the acquisition of Cirque.

To be continued, for sure. And hope that the affair ends like Bécaud’s song.

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