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.
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.
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