Question of the Day - 16 December 2020

Cirque du Soleil was on a downhill slide for a while and then, as you note, disaster struck. 

From 2017 to 2019, Cirque lost in the vicinity of $150 million. Part of it was due to debt. Part was mismanagement, or so we've heard. Part was too many shows in too many locations. And a big part was R.U.N., which cost upwards of $70 million to produce and had a dismal life of five months, the shortest-lived Cirque du Soleil production in its 27 years in Las Vegas.

So there were serious problems before Cirque's cash flow all but dried up when it had to shut down in March, then finally filed for bankruptcy in June. As David McKee wrote, "The coronavirus was the catalyst that put the ailing Cirque du Soleil patient into intensive care."

The root of the problem dates back to a 2015 and the $1.5 billion leveraged buyout of Cirque that burdened the company with $900 million in debt, on which it defaulted. David McKee also notes that the "architect of this fiasco is TPG Group, one of the two private-equity funds that bankrupted Caesars Entertainment with a $29 billion leveraged buyout in 2008." 

Chapter 11 for Cirque loomed even larger when its bonds were downgraded to second-from-worst status by Moody’s Investor Service. This happened on March 19, just as Cirque was shutting down along with the rest of the world. The company immediately laid off 4,679 employees of its 5,000 employees, retaining 240 staffers to keep up basic operations. 

Before the shutdown, Cirque was approaching a billion per year in revenues, but after operating costs for 44 shows (six in Las Vegas) and servicing leveraged loans, which have high interest rates that reflect the higher risk of default, there was precious little left over. When Moody's downgraded Cirque's bonds, it found Cirque holding $20 million in cash, plus another $85 million in letters of credit. 

All that said, it didn't take long, relatively speaking, for Cirque to reorganize and emerge from bankruptcy, which it did just before Thanksgiving when the company announced the closing of another sale to its secured lenders. A new board of directors was installed by the new ownership, which includes former MGM Resorts CEO Jim Murren. 

The press release was nothing if not optimistic, touting the deal as providing Cirque with "a solid foundation for a successful relaunch," which will include "enhanced fan experiences" and a "concerted drive into new markets." 

We wish the revamped Cirque well. Other than ill-conceived R.U.N., we've liked all their Las Vegas shows.