PizzaExpress Owner Keeps Lenders Waiting for Debt Talks
The clock is ticking for PizzaExpress to reduce the chain’s 1.1 billion-pound debt pile
(Bloomberg) -- An attempt by lenders to get PizzaExpress Ltd. to open talks on ways to prop up the troubled restaurant chain has failed to bring its Chinese owner to the negotiating table.
The investors, holding 70% of PizzaExpress’s most senior bonds, sent a letter to the company a week ago pledging to provide new funds, according to people familiar with the matter. Hony Capital, which acquired PizzaExpress in a 900 million-pound ($1.2 billion) leveraged buyout five years ago, has so far met the approach with silence, said the people, who asked not to be identified because the matter’s private.
A spokesman for PizzaExpress declined to comment on the debt situation. A representative for Hony Capital declined to comment.
The clock is ticking for PizzaExpress to reduce the chain’s 1.1 billion-pound debt pile with its first debt maturity looming in August next year. The bondholders see value in the company, especially in the U.K. operations, and want to avoid the loss of a viable business, according to the people.
Hony has overseen an expansion of PizzaExpress into China just as a malaise took hold in Britain’s retail sector amid changing consumer habits and flagging consumer confidence. Creditors are concerned that the expansion is draining cash from the business. The chain’s restaurants in the U.K. and Ireland make about 18% more revenue per store than those in China and elsewhere, according to a recent report by investment bank Imperial Capital.
“The capital structure is unsustainable,” Saro Bos, an analyst at Imperial Capital, wrote in the note to clients. “We expect the company will eventually have to restructure.”
Options to support PizzaExpress may include refinancing a 20 million-pound revolving credit facility which comes due next year and exchanging debt for shares, the people familiar with the matter said.
PizzaExpress’s senior secured bondholders have included Cyrus Capital Partners Europe LLP, HIG Capital LLC and Marathon Asset Management LP. Perella Weinberg Partners and Latham & Watkins are advising the investors.
A representative for the senior secured bondholder group and its advisers declined to comment. A spokesman for Marathon declined to comment, while officials at Cyrus and HIG didn’t respond to requests for comment.
Unsecured Debt
So far the owner’s only public move has been to offer to buy back as much as 80 million pounds of the company’s 200 million pounds of unsecured notes at a steep discount and that’s been met with opposition. The maneuver may be an attempt to control the riskier part of the debt structure and build a blocking stake. Hony already has about 23 million pounds of the securities which pay holders a hefty 8.625% in interest, according to a report by Covenant Review.
“It’s possible that the sole purpose of the tender is to be in a position to challenge valuations in a U.K. scheme of arrangement,” Imperial Capital wrote.
Unsecured bondholders countering Hony’s offer include hedge fund Beach Point Capital Management. The group is advised by law firm Paul Hastings and aims to wait for better terms for the notes, people familiar said last week.
According to the Sunday Telegraph, junior noteholders are planning to raise capital to buy out PizzaExpress’s senior notes and write them off. In exchange, Hony Capital would give up control of the company and write down a 500 million-pound shareholder loan.
Hony has already been exposed to struggling startup WeWork, as a lead investor in the firm’s Asian expansion before things turned sour with a failed IPO this year.
The PizzaExpress buyback offer was poorly received by S&P Global Ratings which cut the firm’s credit score to nine levels below investment grade last week. S&P said a distressed exchange or debt restructuring is likely within six months.
At this stage, it’s still to be seen what form any proposed debt restructuring will take and whether it will affect the ownership of the company.
PizzaExpress could even be carved up, according to independent analysis firm Everest Research. A “sensible way” to restructure would be for the secured bondholders to take over the U.K. operations with Hony “buying” the Chinese business, Everest said.
--With assistance from Cathy Chan and Irene García Pérez.
To contact the reporters on this story: Antonio Vanuzzo in London at avanuzzo@bloomberg.net;Katie Linsell in London at klinsell@bloomberg.net
To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Chris Vellacott, Luca Casiraghi
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