Illustration: Aïda Amer/Axios

The fate of Cirque du Soleil will be decided in a courtroom, not under the big top.

Driving the news: The live events giant yesterday filed for bankruptcy protection in Canada and confirmed furloughs of around 3,500 employees.

What happened: The coronavirus pandemic decimated the company almost entirely reliant on revenue from live events.

  • Just weeks before the virus hammered North America, Caisse de dépôt et placement du Québec (CDPQ) had increased its stake in the company and its debt was trading just below par.

What now: Cirque's existing private equity owners, including TPG Capital, offered a reorganization plan whereby they'd retain a 55% equity stake.

  • A source says that 26 parties signed nondisclosure agreements with Cirque, but this was the only formal offer received.
  • It includes $300 million in new investment, $200 million of which is debt financing from Investissement Québec.
  • That money also would include the establishment of a $15 million fund for furloughed employees, and a $5 million fund for contractors.

Between the lines: Cirque creditors aren't pleased with an arrangement that would leave them without a controlling interest. They're expected to submit a rival plan today, ahead of a Canadian court hearing.

  • This reflects something that's emerging as a big difference between our current financial crisis and the prior edition: Banks and other lenders are in a much stronger financial position, and seem more interested in fighting to defend their cap table superiority.
  • These conflicts could become more prevalent as bankruptcies continue to rise. As we noted yesterday, there already have been more global corporate defaults in 2020 than in all of 2019.

The bottom line: Neither the private equity firms nor the creditors can really control when Cirque resumes operations. But the "winner" could significantly impact what that resumption looks like, and how many of the 3,500 employees get rehired.

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