PizzaExpress plans for major restructuring that could see 15% of its UK estate closed

In agreement with its secured creditors and majority shareholder, Hony Capital, the business is set for a recapitalisation and restructuring transaction.

The group says the planned restructuring will 'both address the unprecedented challenges presented by Covid-19 pandemic, and deliver a more robust balance sheet to support PizzaExpress’ future growth'.

The restructuring will see a significant de-leveraging of the group’s external debt, from £735m to £319m; an extension of maturities; and the potential transfer of majority ownership to its secured noteholders if a higher bid is not provided by a third party.

PizzaExpress says it has engaged Lazard & Co to advise it on a sale process and to help identify third party interest in an acquisition of the group.

Should a third party fail to provide such a bid, the holders of the senior secured notes will acquire the business, with individual holders will be entitled to receive shares (pro rate) 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 and the existing shareholders will be entitled to receive a minority equity position in the new holding company.

The process will also include a major recapitalisation, with the provision of up to £144m of committed new facilities, £70m of which will be used to support the re-opening of its UK estate and further strategic development, with the remaining £74m available for utilisation in refinancing the group’s existing super senior debt facility, if required.

The group currently anticipates that its existing £70m super-senior credit facility will remain in place and mature on 30 April 2023.

There will also be a resetting of the group’s UK leasehold obligations through a company voluntary arrangements (CVA); and a divestment of its mainland China business.

PizzaExpress currently operates 449 restaurants throughout the UK, the vast majority of which, it says, were 'trading profitably before lockdown'.

So far 166 sites have reopened following the easing of Coronavirus lockdown measures.

While it is clear to state that the outcome is 'yet to be decided', the CVA process may result in the permanent closure of around 15% of PizzaExpress’ UK restaurants with up to 1,100 jobs at risk.

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. 

Describing the decision as being ‘regrettable’ and 'very difficult', the business adds that it believes a reduction in the size of its estate is necessary to protect the majority of its employees long-term.

“Today’s agreement with our share and debt holders provides us with a significantly more robust balance sheet as well as material additional funding,” says CFO Andy Pellington.

“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.”

PizzaExpress MD Zoe Bowley adds that while the financial restructuring is a positive step forward, at the same time the group has 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," she says

“This is incredibly sad for our PizzaExpress family and we will do everything we can to support our teams at this time.”

Houlihan Lokey EMEA, LLP and Kirkland & Ellis International LLP are advising the business as financial advisor and legal advisor, respectively, in relation to the restructuring.