Cirque Du Soleil Group Rating Lowered To 'CCC-' On Significant Liquidity Pressure; Outlook Negative

  • Cirque Du Soleil Group faces significant liquidity pressure from the sudden shutdown of all of its shows in reaction to the coronavirus pandemic.
  • In our view, a default, distressed exchange, or restructuring appears inevitable in the next six months absent a successful refinancing or unanticipated significantly favorable changes in the company's circumstances.
  • Therefore, S&P Global Ratings is lowering its issuer credit rating on Cirque Du Soleil Group to 'CCC-' from 'B-'. The outlook is negative.
  • We are also lowering the rating on the company's first-lien facility to 'CCC' from 'B' and on its second-lien term loan to 'C' from 'CCC'.
  • The negative outlook reflects the possibility that Cirque could default, initiate a distressed exchange, or restructure its debt over the next several months absent unanticipated significantly favorable changes in the company's circumstances.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions above.
In response to the social distancing measures that have been put in place to slow the spread of the coronavirus pandemic, Cirque has shut down all of its shows and will be unable to generate revenue until pandemic fears have abated enough to allow it to reopen.  We expect that the company will take all possible liquidity-preserving actions, which have already included laying off 95% of the workforce. If Cirque were unable to reopen its shows for a prolonged period of time, we believe that available liquidity sources would be insufficient to meet the company's near-term obligations. In addition to debt service, and the funding of ongoing operations and remaining payroll, the company might be obligated to refund a significant amount of deferred revenue from advanced ticket sales. Although the strictest restrictions on travel and social gatherings might be lifted in the coming weeks or months, we expect it will be some time before fears around the virus have abated enough for Cirque to resume its theatrical shows. Because Cirque does not have cash on hand that is sufficient to service its debt, pay remaining expenses, and refund advanced deposits, we estimate the company could default within the next six months. We also believe there is significant uncertainty regarding the future form and viability of Cirque and other theater-based business models, in light of the spread of COVID-19 and potentially new health standards that might apply to such businesses.
The negative outlook reflects our view that the company will likely default, initiate a distressed exchange, or pursue a restructuring over the next few months. The outlook also incorporates the challenges the company may face if it reopens its shows into a U.S. recession.
We could downgrade Cirque, likely to 'D', if it missed an interest payment and we did not expect it to be paid. Alternatively, we could lower our rating on the company to 'SD' (selective default) if Cirque announced any type of debt restructuring or extension.
We could raise the rating on Cirque if it were able to reopen its shows, sustainably generate cash flow, and have adequate liquidity.
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