Chuck E. Cheese debt talks accelerate

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Creditors to CEC Entertainment Inc., which runs Chuck E. Cheese and Peter Piper Pizza, are weighing restructuring options including bankruptcy as the company seeks to get through the pandemic that has shuttered its locations.

Lenders and bondholders are considering putting new money into the business to keep it afloat, according to people familiar with the matter who asked not to be identified discussing a private matter. Both in and out-of-court options to tame the company’s debt load are being discussed, said the people, noting that the situation is evolving as states across the country mull whether to lift stay-at-home orders.

A Chapter 11 bankruptcy filing would allow CEC, acquired by private equity firm Apollo Global Management Inc. in a 2014 leveraged buyout, to keep some locations operating and permanently close weaker ones to minimize costs. Chuck E. Cheese alone has over 600 outlets, which would be evaluated for closures as part of the potential court-supervised process, the people said.

Representatives for CEC and Apollo didn’t immediately respond to requests for comment.

A group of bondholders has suggested putting $100 million of new money into the firm, extending maturities and adding a payment-in-kind option to give the firm more flexibility, said the people. While a proposal was sent to the company, holders haven’t been asked to sign non-disclosure agreements, the people added. PIK notes allow companies to borrow more in lieu of making interest payments, which can help firms facing liquidity pressure.

Lenders also organized with advisers and are contemplating putting in new money to support their investment in the company. The group hasn’t sent any formal proposals to CEC, but some parties have discussed new financing of around $200 million as an option to rework the balance sheet, the people said.

The bondholder group is working with Ducera Partners as financial advisers and King & Spalding as legal counsel, while the loan holders are being advised by investment bank Houlihan Lokey Inc. and law firm Akin Gump Strauss Hauer & Feld, the people said.

CEC is getting its own help from restructuring lawyers at Weil, Gotshal & Manges, as well as investment bankers at PJT Partners, said the people.

Representatives for PJT, Akin, Houlihan and King & Spalding declined to comment. A representative for Ducera didn’t immediately provide comment.

CEC is negotiating with its debt investors ahead of a $1.9 million loan payment due at the end of June. It also has coupon payments due in mid-August on its bond maturing in 2022.

CEC said in April that its comparable store sales for the three months through March dropped 22% and it expected its company-operated venues to sustain losses while on-premise dining and arcade attractions remained closed.

Entertainment and leisure have been among industries hardest hit by the coronavirus, with locations shut and consumers staying at home under state and federal guidelines. Though restrictions are starting to ease, it’s unclear how many consumers are ready to return to family entertainment destinations.

Chuck E. Cheese’s $760 million term loan trades around 60 cents on the dollar, according to data compiled by Bloomberg, down from near par as recently as March. Its bonds have sunk to just 9 cents on the dollar from near par at the beginning of this year, according to Trace pricing data.

A plan to take CEC’s parent company Queso Holdings Inc. public through a merger with shell company Leo Holdings Corp. was abandoned last year -- a deal that would have valued the firm at about $1.4 billion.

Irving, Texas-based CEC was originally incorporated under the name ShowBiz Pizza Place Inc. The company changed its name in 1998 to CEC Entertainment and today its franchisees operate a system of more than 120 Peter Piper Pizza venues as well as the Chuck E. Cheese sites, with locations in 47 states and 16 foreign countries and territories, according to its website.

CEC Entertainment reported its full-year and fourth-quarter earnings in March, with $34.8 million of cash on hand at year-end. It drew down its entire credit facility in March.

Bloomberg News