Thursday, July 2, 2020

TPG's Slippery Pre-bankruptcy Move for Cirque du Soleil

Canada’s Cirque du Soleil Entertainment Group filed for bankruptcy protection on Monday, June 29, 2020.  NYPost reported:

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 value did those worldwide trademarks have when lenders made their original deal with TPG and Cirque du Soleil?

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 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.
Prior PEU pre-bankruptcy moves included paying sponsors a dividend or giving huge management bonuses.  TPG's move is the latest PEU innovation from the greed and leverage boys.

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.”
These people are the recipients of  trillions in Federal Reserve support.  Bloomberg reported on April 15th:

The Montreal-based company is discussing a $50 million loan secured by Canadian intellectual-property assets, according to people familiar with the matter. The borrowing would give the company time to explore options including potential government assistance.
Bloomberg noted PEU fear of the public learning private equity affiliates received federal support via  the myriad of federal programs:

After the government broadly excluded private equity firms from the program, dozens found ways to steer around the restrictions, often adjusting governance or ownership arrangements with portfolio companies in sectors including entertainment, fitness, sports and dermatology, the people said, asking not to be named discussing confidential arrangements.

What’s more, some portfolio companies also benefited from indirect taxpayer support after helping scores of related businesses apply for PPP loans, keeping revenue flowing, the people said.

The industry’s secret success in tapping SBA money risks stoking a new uproar in Washington. 
Did Cirque du Soleil get any government assistance after laying off 4,679 employees by video and informing them they have no health insurance via e-mail?

TPG's shifting Cirque du Soleil assets to a newly created entity and making a loan to that entity is hardly an arm's length arrangement, given TPG's 60 percent ownership.  That $50 million loan should give TPG a minor equity stake in Cirque post bankruptcy.

The PEU boys fear public backlash from their taking massive government grants and/or loans.  Why should billionaires fear the common man learning of their ramped up financial support from Uncle Sam?   Because many of us have worked for one of their portfolio companies.  Consider this Cirque du Soleil employee's experience:

Been a technician on a Vegas Cirque show for 15 years.

It was great early on. Back when the company actually cared about performers and staff. They did their best to try to make it actually feel like a family. There were maybe 10 shows max at the time, that they focused on and really paid attention to quality and morale. That’s how the company made billions of dollars.

The company started expanding, getting into various industries that had nothing to do with the shows. Or doing shows that didn’t really fit with what Cirque was known for and good at. Those experiments failed and the company suffered. Every year when upper management would go around to all the shows, we would hear an assurance that the company was going to go back to focusing on the shows. And then it didn’t happen. Again and again. Pay for technicians fell more and more behind market rate. It didn’t even keep up with inflation.

Then Guy sold off Cirque to investment companies. Everything started nose-diving. Budgets for the top-selling shows were cut by 20%, 40%, 60%. We did our best to keep up the shows, but quality went down. Performers were cut. Technicians were cut. Safety was cut. It’s amazing that no equipment had major failures.
The fight begins for control of Cirque du Soleil post bankruptcy.  Axios reported:

Cirque's existing private equity owners, including TPG Capital, offered a reorganization plan whereby they'd retain a 55% equity stake
Lenders giving up $900 million in debt is only worth a 45% stake?  That makes TPG's pre-bankruptcy move even stinkier if a $50 million loan gets them 55% of a reorganized Cirque

The greed and leverage boys will continue their PEU ways as long as politicians Red and Blue love PEU.