Chuck E. Cheese owner CEC Entertainment is struggling to drum up enough demand for a $660 million high-yield bond sale to refinance debt it has due next year, according to people familiar with the transaction.
JPMorgan Chase & Co. and Goldman Sachs Group Inc., the banks leading the deal, had not obtained sufficient orders from investors, and were straining to price the bond ahead of a Friday afternoon deadline, said the people, who asked not to be identified discussing private information. One of the people attributed the difficulties to a broader market rout stemming from concerns about the Trump administration’s tariff policies as well as the U.S. economy.
Known for pizza and video games, as well as its rodent mascot, Chuck E. Cheese has long been a staple for kids’ birthday parties across the U.S. But the company remains highly susceptible to an uptick in inflation and an economic slowdown as consumers tighten discretionary spending.
Other transactions in the leveraged finance market that are vulnerable to a dip in consumer spending, including casino operator Mohegan Tribal Gaming Authority, have faced investor pushback lately partly because of concerns about the US economy.
Since emerging from bankruptcy during the Covid-19 pandemic, Chuck E. Cheese also embarked on an expensive revamp, spending approximately $350 million on upgrades. It has introduced a subscription program for customers, and venues have undergone costly makeovers with features like floor-to-ceiling jumbotrons, trampolines and new merchandise.
In April 2021, CEC Entertainment raised $650 million in five-year, high-yield bonds to yield 6.75 per cent, Bloomberg News reported at the time. This week’s efforts, however, aimed to refinance that debt with a five-year deal that had initial price discussions in the mid-9 per cent area, said the people familiar.
Representatives for JPMorgan and Goldman Sachs declined to comment. A representative for CEC Entertainment did not immediately respond to a request for comment.
While a new bond would extend the company’s debt maturities, it would also significantly boost its interest costs and pressure CEC’s already weak interest coverage, according to a Moody’s Ratings report published on Wednesday. On a pro-forma basis, debt-to-earnings before interest, tax, depreciation and amortization will increase, but remain less than a multiple of five, Moody’s said.
Moody’s, which gave this week’s proposed bond deal a B3 rating, also expects CEC’s cash flow to turn “solidly positive” since it completed its Chuck E. Cheese revamp last year. As a result, the company’s capital expenditure needs will decrease, Moody’s wrote.
Headquartered in Irving, Texas, CEC Entertainment owns, operates and franchises locations for both the Chuck E. Cheese and Peter Piper Pizza brands.
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