Houlihan Lokey Advises CEC Entertainment

Houlihan Lokey is pleased to announce the successful recapitalization of CEC Entertainment, Inc. (CEC), a nationally recognized leader in the family dining and entertainment space with a global network of venues the company develops, operates, and franchises under the brands Chuck E. Cheese and Peter Piper Pizza. The recapitalization addressed CEC’s ~$1.0 billion of prepetition funded debt and provided for lease amendments on more than 340 locations. The transaction meaningfully reduced the company’s debt balance alongside a new money financing, providing CEC significant runway to execute on its growth strategy.

Founded in 1977, CEC focuses on providing an exciting, fun-filled play and food experience for children and parents across its 558 Chuck E. Cheese and 114 Peter Piper Pizza venues, for a system-wide total of 672 venues spanning 47 states and 15 foreign countries and territories. The company’s complementary brands, Chuck E. Cheese and Peter Piper Pizza, both offer guests a pizza-anchored menu as well as various forms of entertainment. Chuck E. Cheese uniquely appeals to a customer base of families with children between two and 12 years of age with arcade games, prizes, and birthday party packages. Peter Piper Pizza operates smaller venues with a primary emphasis on serving high-quality handcrafted food and beverages (including beer and wine) and state-of-the-art games for all ages.

CEC suspended on-premise dining, entertainment, and arcade rooms at all Chuck E. Cheese and Peter Piper Pizza restaurants in March 2020 in response to nationwide COVID-19 public health concerns and shelter-in-place orders. The shutdown of all locations prompted the company and its stakeholders to immediately address several key issues, including near-term liquidity concerns, a potential breach of its secured leverage covenant, and an impending springing term loan maturity. Shortly after CEC and its advisors first engaged with the Ad Hoc Group of First Lien Lenders (Ad Hoc Group), the company notified the Ad Hoc Group that it would be filing for a free-fall bankruptcy within 48 hours, which occurred on June 24, 2020. The accelerated filing date was primarily driven by the fear that landlords would lock the company out of locations, as the company had not paid rents for the prior three months.

Following the filing, the Ad Hoc Group quickly began negotiations with the company on a debtor-in-possession (DIP) financing and a broader holistic transaction. In early September 2020, CEC entered into a plan support agreement (PSA) with the Ad Hoc Group, holding more than 67% of outstanding first lien debt, and received a commitment for $200 million in DIP financing to support the ongoing business operations. By October 2020, the amended PSA garnered support from 92% of the first lien lenders and 80% of the holders of the senior unsecured notes. The transaction contemplated (i) $864 million of first lien debt exchanged for $175 million in new second lien debt and 50% of the equity in the reorganized company, (ii) a $200 million new money exit financing provided by the first lien lenders with 45% of the equity in the reorganized company attached, and (iii) a 5% backstop fee paid in equity to the Ad Hoc Group. Additionally, the holders of the senior unsecured notes received warrants for 10% of the reorganized equity struck at an enterprise value of $1.3 billion. In total, the company reduced its outstanding indebtedness by ~$700 million as part of the transaction.

Houlihan Lokey advised the Ad Hoc Group, which comprised the vast majority of the first lien lender group.