Pizza Express has put itself up for sale and revealed it could close 15% of its restaurants and will seek a CVA in what represents the biggest restructuring exercise in its history.
The chain confirmed it has reached agreements with certain secured creditors and its majority shareholder, Hony Capital, for a holistic recapitalisation and restructuring transaction which it claims will significantly strengthen the group and provide funding to deliver its future growth plan.
The transaction comprises a number of inter-conditional steps, including a significant de-leveraging of its external debt, from £735m to £319m; extension of maturities; and potentially the transfer of majority ownership of the group to its secured noteholders.
It also involves a a major recapitalisation with the provision of up to £144m of committed new facilities to support further growth and a resetting of the group’s UK leasehold obligations through a company voluntary arrangement.
Additionally, it will need to divest its mainland China business.
Pizza Express has engaged Lazard & Co to advise it in connection with a competitive sale process, which is being run independently of the other aspects of the transaction to identify third party interest in an acquisition of its assets.
If it does not receive any bids that are 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 £200m 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 £200m of unsecured notes will be entitled to receive a minority equity position in the new holding company.
A number of Pizza Express’ existing secured creditors have committed a new facility of up to £144m, of which £70m is available to support re-opening Pizza Express restaurants in the UK after an extended period of closure and further strategic development, and £74m is available for utilisation to refinance the group’s existing super senior debt facility, if required.
Pizza Express currently operates 449 restaurants throughout the UK, the vast majority of which were trading profitably before lockdown.
It said it has worked with advisers to conduct an extensive review of its operations, including 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 could result in the permanent closure of around 15% of PizzaExpress’ UK restaurants – approximately 70 sites – with up to 1,100 jobs at risk.
The company insisted the restructuring will put the business on a stronger financial footing in the new socially distanced environment.
Zoe Bowley, UK&I managing director at Pizza Express, said: “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.”
The company said that 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 said it 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.”