Relevant Documents:Monitor’s ReportService List
Cirque du Soleil has abandoned the
initial stalking horse purchase agreement with TPG, Fosun and Caisse de dépôt et placement du Québec and is now pursuing a “vastly superior” proposal with the ad hoc committee of first lien and second lien lenders represented by Milbank as counsel and Houlihan Lokey as financial advisor, the company’s counsel said today. At a hearing before Justice Louis Gouin of the Superior Court of Quebec, Commercial Division, counsel for Cirque said that the company has “negotiated what we believe is a final credit bid APA with the ad hoc committee” and will not be seeking approval of the previously filed stalking horse agreement with the sponsors. The amended stalking horse agreement is substantially finalized although the parties are still discussing certain “immaterial items,” counsel for the company added.
The court heard remarks today from counsel for Quebecor, a potential bidder that has called for the appointment of a chief restructuring officer for Cirque, as well as for a group of second lien lenders holding approximately 20% of Cirque’s second lien notes. Counsel for Quebecor raised concerns regarding the information made available to possible bidders. Counsel for the second lien group emphasized that his clients are “independent” because they do not simultaneously hold first lien debt and asserted that the group aims to participate in the case in a “constructive” and not “destructive” way.
Justice Gouin scheduled a hearing next Friday, July 17, to consider approval of the amended stalking horse agreement and related guidelines relating to the sale and investment solicitation process, or SISP. Any objections will be due Thursday, July 16, at 5 p.m. ET, the court said.
Counsel for the company stated that Cirque will take the “corporate steps” necessary to seek approval of the credit-bid agreement with the lender group. The company will submit the credit-bid APA for approval with the transaction committee and then through the council of representatives by no later than next Tuesday, July 14. He added that he expects a meeting of the company’s transaction committee and council of representatives to take place on Tuesday evening at the earliest. When Justice Gouin asked whether the documents can be circulated to case parties on the service list by Wednesday, July 15, at 12 p.m. ET, company’s counsel responded in the affirmative. He said that he expects the amended APA to be “very similar” to the initial APA in form. Counsel also emphasized that the approval of a stalking horse agreement would be a “starting point” in the sale process, not a “finish line.”
Counsel for the ad hoc committee spoke briefly during the hearing, calling the negotiation of the amended stalking horse agreement a “significant step forward in bringing Cirque’s restructuring process back on the right track.” Reorg previously
reported on a July 1 call during which advisors to the ad hoc committee reviewed the group’s arguments against Cirque’s initial stalking horse proposal with the sponsors.
During today’s proceedings, an attorney for Quebecor expressed concerns about the process leading to the negotiation of the amended stalking horse proposal and the information made available to potential bidders. On July 7, Quebecor sent a letter to the company calling for the appointment of a chief restructuring officer to oversee the sale process, as described in further detail below.
Counsel for Cirque, however, responded that Quebecor had pushed to have discussions with the first lien lenders without the monitor or the company’s advisors present. “If bidders start talking to each other you can imagine where that would lead us,” he said. However, he remarked that the company is “prepared to make some concessions” and that discussions between Quebecor and the ad hoc committee could take place with some supervision by the monitor and the company’s financial advisors. Cirque’s attorney also said that the company is “cautious” in its communications with Quebecor because Quebecor has been responsible for “negative media coverage” of Cirque and “they may not be the friendly bidder that they pretend they are.”
As the hearing drew to a close, counsel for an “independent committee” of second lien creditors spoke, noting that his clients hold approximately 20% of Cirque’s second lien notes. He said that his clients are “entirely independent” from the lender group now poised to be the new stalking horse bidder. That ad hoc committee includes both first lien lenders and cross-holders who own both first and second lien debt, he remarked, while his clients do not hold any first lien debt and are “not conflicted in their interest.” He asserted that the second lien lenders are the fulcrum creditors “who will suffer the most if there is a shortfall,” adding that his clients are looking to participate in the case in a “constructive” way.
Quebecor Letter
In a letter dated July 7 reviewed by Reorg to Cirque du Soleil and the ad hoc lender group, Quebecor argued for the appointment of an independent chief restructuring officer to assist in the conduct of the sale and investment solicitation process and oversee the operations and affairs of Cirque du Soleil, due to Cirque’s “complete lack of independence” from its own shareholders. Quebecor said that the bid that constitutes the highest and best bid should be selected by the court-appointed monitor in consultation with the CRO and with the consent of the first lien and second lien lenders.
Quebecor said no stalking horse bid should be accepted, solicited or considered, because no proper canvassing of the market was undertaken; the stalking horse bid is not the highest and best bid received; no stalking horse is necessary or appropriate to ensure a competitive process, considering the number of bids received; at least some of the bids are largely superior to the stalking horse bid; the proposed stalking horse bidder is related to Cirque; and such process actually provides an undue advantage to the stalking horse bidder.
Quebecor said no bidder should be restricted from contacting Cirque’s first lien and second lien lenders to assess the terms of a bid that would be acceptable to such lenders. It said Cirque du Soleil previously insisted that no bidder would be allowed to participate in the process unless such bidder agreed not to contact Cirque’s lenders to prevent any bidder from assessing the terms that would be of interest to such lenders, which would normally in a fair and transparent process determine the highest and best bid.
Cirque du Soleil did not immediately respond to a request for comment; Quebecor’s counsel declined to comment.
--Harvard Zhang, Karen Leung