Pizza Express, which has outlets in Hong Kong, is set to be taken over by its bondholders, with the possibility of restaurant closures as the UK high street chain struggles with the loss of revenues during the coronavirus pandemic.
The Guardian reports that the chain’s Chinese owner, Hony Capital, could lose control of the company as part of a debt-for-equity swap.
In Hong Kong, Pizza Express has 23 restaurants.
A group of investors in bonds worth £465 million is in advanced talks over the deal, according to a source. The Financial Times first reported that talks were underway.
Founded in 1965 in London’s Soho, Pizza Express has 470 outlets in the UK, with a further 150 internationally. It employs 8,000 people in the UK.
Hony, a Beijing-based private equity manager, manages investments worth US$12 billion (£9.5 billion), according to its website. But the value of its holdings in companies including WeWork, the office space provider, has been hit by the pandemic.
It bought Pizza Express in 2014 in £900 million deal, made shortly after the restaurant chain opened its first branch in Beijing. The investment manager hoped to drive the growth of Pizza Express in China.
However, the chain has struggled in the UK home market even before the pandemic. Talks over debt restructuring began in October.
Analysts at bond rating agency CreditSights estimated that core earnings for Pizza Express’s UK operations could be £36 million for 2020 – £30 million less than estimates before the pandemic hit.
However, that estimate was predicated on the chain cutting its rent bill in half. Revenues would be more than £100 million lower year-on-year, according to the CreditSights model.
Any rent reductions would likely be achieved through a company voluntary arrangement (CVA), which companies use to renegotiate terms with multiple creditors rather than going bust. Less profitable branches could be threatened with closure during a CVA, although the source with knowledge of the talks said no decisions had been made on restructuring.
As well as the bonds, which mature in August 2021, Pizza Express also owes another £200 million in unsecured loans due in August 2022. Overall debt reached £1.1 billion by the end of December 2018, the last year for which accounts are available.
Pizza Express declined to comment. Hony Capital did not immediately respond to a request for comment.
As well as the bonds, which mature in August 2021, Pizza Express also owes another £200 million in unsecured loans due in August 2022. Overall debt reached £1.1 billion by the end of December 2018.
