Pizza Express has today announced that agreement has been reached with certain of its secured creditors and its majority shareholder, Hony Capital, for a holistic recapitalisation and restructuring transaction which will significantly strengthen the Group and provide funding to deliver its future growth plan.
The planned restructuring will both address the unprecedented challenges presented by Covid-19 and deliver a more robust balance sheet to support Pizza Express’ future growth.
The transaction comprises a number of inter-conditional steps
- Restructuring involving a significant de-leveraging of the Group’s external debt, from £735 million to £319 million; extension of maturities; and potentially the transfer of majority ownership of the Group to its secured noteholders.
- Major recapitalisation with the provision of up to £144 million of committed new facilities (included in the de-leveraging referenced above), to support the future development of the Group’s business.
- Resetting of the Group’s UK leasehold obligations through a company voluntary arrangement (‘CVA’)
- Divestment of the Group’s mainland China business.
Houlihan Lokey EMEA, LLP and Kirkland & Ellis International LLP, as financial advisor and as legal advisor, respectively, are advising the Group in relation to the restructuring.
The Group has also engaged Lazard & Co., Limited to advise it in connection with a competitive sale process relating to the Group (the ‘Sale Process’).
The Sale Process is being run independently of the other aspects of the transaction to identify third party interest in an acquisition of the Group (or all or substantially all of the assets of the Group). The Sale Process was commenced today.
Balance sheet restructuring
If the Sale Process does not result in any third party providing a bid for the Group which is higher than the bid of the holders of the Group’s secured notes, the holders of the senior secured notes will acquire the business, with individual holders being entitled to receive shares (pro rata) in a new holding company of the Group and £200 million of new senior secured notes, due in 2025.
As a result, the transaction will involve a change of ownership of the Group and the existing shareholders and the holders of the Group’s £200 million of unsecured notes (the ‘SNs’) will be entitled to receive a minority equity position in the new holding company.
The Group is in discussions with the holders of the SNs and hopes to reach agreement regarding their support for the restructuring shortly.
Additional investment to support future growth
A number of PizzaExpress’ existing secured creditors have committed a new facility of up to £144 million, of which £70 million is available to support re-opening Pizza Express restaurants in the UK after an extended period of closure and further strategic development, and £74 million is available for utilisation to refinance the Group’s existing super senior debt facility, if required.
The Group currently anticipates that its existing £70 million super senior credit facility will remain in place and mature on 30 April 2023.
Restaurant re-openings and closures
Pizza Express currently operates 449 restaurants throughout the UK, the vast majority of which were trading profitably before lockdown. Following Government advice for the UK hospitality sector, all of its UK sites were closed on 23 March 2020.
During the pandemic Pizza Express has taken decisive action; prioritising the safety of its teams and customers, reducing its cost base and benefiting from various Government support measures.
The Covid-19 crisis has had a profound impact on the entire hospitality sector, with the UK-wide lockdown reducing revenues significantly. The business and its advisers have therefore undertaken an extensive review of its operations to plan appropriately for the future. This included plans for implementing new safety processes and adapting the offer to reflect changed customer needs as a result of the pandemic.
The review also evaluated, on a site-by-site basis, forecasted future trading performance based on a delayed and inconsistent recovery to previous trading levels.
Following this analysis, Pizza Express will launch a CVA in the UK in the near future. This is intended to improve operational performance by reducing its UK restaurant estate and rental cost base in response to a significantly more challenging trading environment, and is a precondition to the balance sheet restructuring.
Although the outcome is yet to be decided, this process may regrettably result in the permanent closure of around 15% of Pizza Express’ UK restaurants with up to 1,100 jobs at risk.
This decision is a very difficult one, however, against the current unprecedented backdrop, Pizza Express believes reducing the size of its estate will help it to protect 9,000 jobs.
Should the proposals go ahead, the company will look for redeployment opportunities both internally and externally for those employees impacted, and also offer outplacement support. Exact details of the future restaurant estate have not yet been agreed and will be announced when the CVA is formally launched.
Although the Covid-19 crisis has been a huge setback for the entire casual dining sector, Pizza Express has consistently demonstrated its resilience, and this restructuring will put the business on a stronger financial footing in the new socially distanced environment.
Customer demand has been encouraging at the initial group of 60 restaurants that reopened in early July. 166 restaurants are now open as the Eat Out to Help Out initiative starts and plans for further re-openings are well underway.
Looking ahead, Pizza Express remains committed to the roll-out of its ‘FutureExpress programme’ to enhance not only its physical estate but the overall customer experience.
The business will continue to innovate and focus on areas it believes will provide a competitive advantage, investing appropriately to ensure that it can continue trading successfully in the years ahead.
Group CFO Andy Pellington commented: “Today’s agreement with our share and debt holders provides us with a significantly more robust balance sheet as well as material additional funding. It is a complete solution to our balance sheet issues and creates strong foundations to build on for future success.
“While we have had to make some very difficult decisions, none of which has been taken lightly, we are confident in the actions being taken to reduce the level of debt, create a more focused business and improve the operational performance, all of which puts us in a much stronger position.
“We can now plan to invest in both our UK&I and International businesses as well as support our teams as they return to work.”
Zoe Bowley, UK & Ireland Managing Director, added: “Our business has a long history of success, but the UK-wide lockdown has hit the hospitality industry particularly hard.
“While the financial restructuring is a positive step forward, at the same time we have had to make some really tough decisions. As a result, it is with a heavy heart that we expect to permanently close a proportion of our restaurants, losing valued team members in the process.
This is incredibly sad for our Pizza Express family and we will do everything we can to support our teams at this time.
“As we continue to reopen our restaurants for dine in and delivery, we will successfully navigate the extended period of social distancing expected in the months ahead and, in so doing, protect 9,000 jobs.
“The initial signs from the restaurants that have been reopened have been very encouraging and we hope that our loyal customers continue to support us now more than ever.”
Pizza Express for sale – 4 August 2020 – Pizza Express for sale