As you might expect, the company blamed those shutdowns for its troubles. The first bullet point in Cirque's announcement of the filing said, "Company files to restructure under the Companies’ Creditors Arrangement Act in response to immense disruption and forced show closures as a result of the COVID-19 pandemic."
The filing should not have surprised anyone who's been watching the industry. Heck, we warned you about it back in March. But Cirque was in trouble since long before "coronavirus" entered everyone's vocabulary.
Cirque's troubles began in 2015, when it was taken over in a leveraged buyout by a private equity firm. It's a story that's been repeated too many times around the world in recent years. The Atlantic told the Toys R Us version a couple of years ago, if you're looking for the details.
Whatever the company involved, the main plot points are often the same. A private equity firms borrows a ton of money to buy a company. But instead of paying back the money itself - as you would if you bought a car or a home - the equity firm assigns the debt to the company it just bought. That's how Cirque ended up a billion dollars in debt despite running some of the most popular live theater productions in the world.
Companies bought under these deals end up having to make huge debt payments, as well as often paying management fees to the private equity firm that bought them, forcing the company to cut operating costs in order to stay in business. The private equity firm might also saddle the company with more debt to buy additional businesses - as happened when Cirque bought Blue Man Productions. Or the private equity firm might sell off some of the company's assets to raise cash for itself - but never to cover the debt used to buy the company in the first place.
So what's the end game? The private equity firm either sells the company to another buyer, spins off the company to the stock market... or sends the company to bankruptcy to discharge the debt. No matter what, it's all reward and no risk to the private equity partners. And if thousands of people lose their jobs in the process, well that's a sacrifice they are willing to make, as Lord Farquaad once said.
The fact that this legal - and no one in Washington is talking seriously about changing that - illustrates just how the economy can be rigged in favor of Wall Street and against people and companies that do things that the public actually wants.
Like, you know, the people who actually create Cirque and Blue Man shows — of which nearly 3,500 are now laid off due to this bankruptcy.Tweet
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