World’s Biggest Pizza Hut Operator Falls Further Into Distress
World’s Biggest Pizza Hut Operator Falls Further Into Distress
(Bloomberg) -- The largest operator of Pizza Hut restaurants in the world saw its debt plunge further into distress after second-quarter results showed the franchisee inching closer to breaching the terms of its bank credit lines.
Closely held NPC International Inc. reported in a private release to lenders earlier this month that its total debt rose to 6.9 times a measure of earnings, just below the threshold that would trigger a default under the company’s revolver, according to a person with knowledge of the matter. The ratio stood at around 6.3 times in the first quarter. NPC’s owners, including Todd Boehly’s Eldridge Industries LLC, have injected $17.5 million of cash into the business this year to help keep it in compliance with covenants, the person said.
NPC has struggled with rising labor and food costs at a time when it’s seeking to invest in storefronts focused on delivery and move away from traditional dine-in restaurants. The sell-off in the company’s debt has accelerated since the Aug. 9 disclosure, with its first and second-lien loans now being quoted at about 70 and 50 cents on the dollar, according to data compiled by Bloomberg.
In a separate communication to lenders Monday, NPC said it agreed to sell an additional $50 million of first-lien term loans to its equity owners at 98.25 cents on the dollar, according to the person, who asked not to be named because the details are confidential.
The transaction would see Eldridge and a co-investor lend to the company at favorable terms in exchange for a senior claim on its assets. NPC didn’t detail how it plans to use the cash, the person said. NPC already had more than $750 million of debt outstanding prior to the latest loan.
The company is hosting a conference call on Tuesday to discuss its second-quarter earnings, the person said. A representative for Eldridge declined to comment, while NPC didn’t respond to a request seeking comment.
In a conference call with analysts earlier this month, the chief executive of Yum! Brands Inc., the company that owns the Pizza Hut franchise and licenses it to firms such as NPC, acknowledged the financial issues faced by some of its operators.
“We’ll need to directly address franchisees who are burdened with too much debt, don’t have access to capital or aren’t committed to the long term,” Greg Creed said on the call, without mentioning specific operators. “In a few cases, some of these businesses will need to be restructured in the near-term to address capital structure and leverage issues.”
Eldridge, the holding company founded by former Guggenheim Partners president Todd Boehly, agreed to acquire NPC for about $1.2 billion in 2017 alongside a co-investor. Guggenheim Chief Executive Officer Mark Walter is a director at NPC, alongside Tucker Kain, a former Guggenheim vice president, according to public records from March.
To contact the reporter on this story: Davide Scigliuzzo in New York at dscigliuzzo2@bloomberg.net
To contact the editors responsible for this story: Natalie Harrison at nharrison73@bloomberg.net, Boris Korby
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