CEC Entertainment Inc. announced that it would seek to reject the leases for 34 Chuck E. Cheese and Peter Piper Pizza locations. Here’s why and what to expect from the company in the future.
Why They’re Closing
CEC Entertainment Inc., the parent company of Chuck E. Cheese and Peter Piper Pizza, lost more than 90 percent of its revenue after temporarily closing its venues due to the coronavirus pandemic. This was in spite of the company’s efforts to ramp up food delivery and takeout. As a result, CEC Entertainment Inc. filed for Chapter 11 bankruptcy protection late Wednesday, June 24, 2020. “In ordinary times, the company would be financially sound,” CEC Chief Financial Officer James Howell said in the court document, according to an article published by USA Today.
Here is a look at what happened before and after the pandemic:
A couple of years prior to the coronavirus, the company had tried to reinvent itself by refurbishing its venues, boosting in-store sales, implementing dynamic pricing on some weekends and holidays, streamlining the ordering and checkout process, and improving birthday packages. CEC Entertainment Inc. was also preparing for a merger with Leo Holdings, the SPAC created by private-equity firm Lion Capital, that would have turned it into a public company. Unfortunately, the merger fell apart for reasons not mentioned. Fast-forward to December 29, 2019, and CEC Entertainment Inc. was looking at a whopping $975.7 million face value of outstanding debt, not including its lease obligations. Not only that, but Howell wrote in a securities filing dated April 10 that during the first quarter of 2020, the company saw venue sales drop 21 percent. As a result, the company cut operating hours, furloughed most of its hourly workers and 65 percent of its support-center staff, and deferred rental payments on its company-operated venues. The company said that it is being advised by restructuring attorneys, although it is unclear where exactly the company is in their restructuring talks. The company also said that it hopes to use the Chapter 11 process to shed debt and emerge as a more sustainable operation.
Locations That Will Be Closing
According to USA Today, CEC Entertainment Inc. listed the leases it plans to reject in a court filing separate from the bankruptcy protection filing. The list, seen below, was revealed one day after the company filed for bankruptcy. It includes 11 venues that had already permanently closed before the coronavirus pandemic. Franchised locations are not included in the bankruptcy filing.
California locations that are closing
Colorado locations that are closing
Florida locations that are closing
Georgia locations that are closing
Illinois locations that are closing
Iowa locations that are closing
Maryland locations that are closing
Massachusetts locations that are closing
Michigan locations that are closing
Minnesota locations that are closing
Missouri locations that are closing
Nebraska locations that are closing
Nevada locations that are closing
-Las Vegas McCarran
New Mexico locations that are closing
New York locations that are closing
North Carolina locations that are closing
Ohio locations that are closing
Oklahoma locations that are closing
Pennsylvania locations that are closing
South Carolina locations that are closing
South Dakota locations that are closing
Texas locations that are closing
Utah locations that are closing
Virginia locations that are closing
Wisconsin locations that are closing
Other Locations Will Remain Open
After restrictions began easing, CEC Entertainment Inc. reopened 266 of its 555 company-operated Chuck E. Cheese and Peter Piper Pizza restaurants in the United States and Canada, 15 of its domestic franchised locations, and 22 of its international franchised locations. According to an article published by WUSA9, a CBS-affiliated television station in Washington D.C., the company said it will continue to reopen locations and offer carryout and delivery while it negotiates with debt and lease holders. “The Chapter 11 process will allow us to strengthen our financial structure as we recover from what has undoubtedly been the most challenging event in our Company’s history and get back to the business of delivering memories, entertainment, and pizzas for another 40 years and beyond,” CEC Entertainment Inc.’s Chief Executive Officer David McKillips said in a company press release. “I’m confident in the strength of our team and our world-class brands and look forward to more fully implementing our strategic plan as we put these financial challenges behind us,” he added.
Meanwhile, McKillips reassured customers in a message posted on the Chuck E. Cheese website that Chuck E. Cheese will remain open for business now and forever. He also noted that the company will continue to provide delivery and carry-out dining services and is moving forward as planned with re-openings. He also assured customers that their gift cards will retain their full value (CEC Entertainment Inc. requested a judge’s permission to continue to honor tokens, gift cards, game credits, tickets, customer deposits, discount offers and loyalty accounts, as long as the company remains in business) and that they will be able to book birthday parties by private reservation during special hours.
As for customers of the local restaurants or arcades that are not reopening, McKillips said the company is working on a guest-focused solution to honor their gift cards and rewards. “You’ll hear more about that in the future,” he added, while thanking customers for their patience.
What This Means for Bondholders
With CEC Entertainment Inc. filing for bankruptcy and shuttering many of its locations, what exactly does this mean for bondholders? Well, according to an article published by BUSINESS INSIDER, a person familiar with the company said that CEC Entertainment Inc. needed to cover its bank debt before bondholders would get paid. The person also said that it was unclear what coverage would be for bondholders. Meanwhile, several parties are said to be “lawyering up” and bondholders are reaching out to each other, with one group of bondholders considering putting $100 million of new money into the business to keep it afloat, Bloomberg reported. They are also considering extending maturities and adding a payment-in-kind option to give the company more flexibility.
Your turn! Tell us if your local Chuck E. Cheese or Peter Piper Pizza is one of the locations closing. Leave a comment below.