As previously announced on 4 August 2020, Pizza Express today formally launched a proposal to reduce its UK restaurant estate and rental cost base via a company voluntary arrangement. The CVA is intended to improve the operational performance of the business against the backdrop of a challenging trading performance, difficult market conditions caused by the COVID-19 crisis and the effect of lockdown measures upon its restaurants.
Pizza Express CVA 73 closures
This proposal is part of the wider holistic recapitalisation and restructuring transaction, which will significantly strengthen the Group and provide funding to deliver its future growth plan.
This transaction will comprise a number of steps that are being taken in parallel with and inter-conditional upon each other and the CVA, principally:
- an ongoing competitive sale process commenced on 4 August 2020, in respect of which Lazard & Co. Limited is advising, to identify third party interest in an acquisition of the Group.
- if this sale process does not attract a bid from a third party that is higher than the offer of the holders of the Group’s existing senior secured notes due 2021 (the “Existing SSNs”), then this would trigger a financial restructuring involving (amongst other things) …
c.£1bn existing senior secured, senior unsecured and shareholder debt being written off, holders of the Existing SSNs subscribing for new senior secured debt of £200m in the restructured Group, as well as holders of the Existing SSNs injecting new funding of up to £60m (net of financing fees) into the business for future growth plans, with ownership control of the Group being acquired by holders of the Existing SSNs. Holders of the Existing SSNs have also provided a further £70m (net of financing fees) to refinance, if required, the Group’s existing super senior facility of £70m; and
- the divestment of the Group’s mainland China business to an affiliate of Hony Capital.
Summary of CVA proposal
Although the majority of PizzaExpress’ UK restaurants were trading profitably before lockdown, EBITDA across the estate had been declining for the last three years. In addition, since March this year the COVID-19 crisis has caused significant disruption to the UK’s entire casual dining sector.
The unavoidable reduction in revenue as a result of the lockdown, combined with higher costs associated with reopening restaurants and uncertainty about the shape of the UK economy’s recovery, mean that the Group’s rental cost base is no longer sustainable.
The CVA proposed today is designed to reset the Group’s leasehold obligations and allow for a smaller and better-invested UK restaurant estate.
The CVA will seek to achieve this through a combination of reduction in outstanding arrears, reduced rental agreements, a temporary move from quarterly to monthly rents and other measures.
Regrettably, the CVA proposals also include the permanent closure of 73 restaurants, which will impact 1,100 team members.
Clare Boardman and Daniel Butters of Deloitte LLP have been appointed as Nominees to the CVA.
PizzaExpress will seek approval of the CVA proposals from its creditors by way of a virtual meeting on 4 September 2020.
Zoe Bowley, UK&Ireland Managing Director, commented: “The announcement of the CVA proposal today follows a period of constructive dialogue with the British Property Federation and a broad range of our landlords.
“We have taken onboard their feedback and accommodated their requests as far as possible.
“Unfortunately, the impact of the global pandemic has meant that we have had to make some incredibly tough decisions to safeguard PizzaExpress for the long term. Today we have confirmed that 73 of our pizzerias are proposed to close permanently. In most cases, there is another PizzaExpress nearby, either already open or reopening soon, to welcome our customers.
“Our focus is on our people whose jobs are impacted and we will be doing everything we can either to redeploy them or to support them in finding roles elsewhere. Hard as this process is, it will protect the jobs of over 9,000 of our colleagues and provide a strong footing for PizzaExpress to meet future challenges and opportunities.”
Melanie Leech, Chief Executive, British Property Federation (BPF), commented: “These situations are never easy, particularly now for the retail, hospitality and leisure businesses on our high streets at the sharp end of the COVID-19 pandemic. Property owners, however, need to take into consideration the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property, as they vote on any CVA proposal.
“PizzaExpress and Deloitte engaged with the BPF before launching this CVA proposal. This has provided us an opportunity to improve understanding of property owners’ interests and concerns, but ultimately it will be for individual property owners to decide how they will vote on the CVA.”
PizzaExpress CVA 73 closures – 18 August 2020 – PizzaExpress CVA 73 closures – PizzaExpress CVA 73 closures