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PizzaExpress is heading for a takeover by its lenders as early as this month in a debt-for-equity swap with Chinese owner Hony Capital that is also likely to involve closing some of its high street restaurants hard hit in the pandemic.
Investors in the £465m of senior secured bonds that back the company are in advanced talks over a restructuring deal, according to two people familiar with the discussions. These are likely to result in control of the UK business being handed to the debt holders, they said.
The terms of the deal are still being discussed, with Hony potentially taking ownership of the Chinese operations as a result of the restructuring. This would leave the larger UK business in the hands of its bondholders. The chain has about 450 restaurants in the UK and roughly 600 globally.
Hony could still inject new equity into the company with the debt not set for maturity until next summer, the people added, but this appeared increasingly unlikely.
In a further blow to the UK’s struggling high street, PizzaExpress is also likely to seek a company voluntary arrangement as part of the restructuring. This would allow it to shed some outlets and renegotiate rents with its landlords.
It is not clear how many restaurants would be affected, but one person close to the talks said it would involve a “relatively small number” given an otherwise profitable business in the UK before the start of the pandemic.
The coronavirus lockdown and economic fallout has hit the casual dining sector hard, forcing the high street to effectively close for several months and leading to wave of administrations and restructuring.
This has also hit Hony’s intention to remain in control of the business despite the huge debts on its balance sheet. Last year, the Chinese private equity group acquired a stake in the junior debt, which analysts and investors saw as an attempt to gain greater control over the future of the company.
PizzaExpress was acquired by Hony in a debt-laden £900m deal in 2014. The company now carries about £1.1bn in net borrowing — far exceeding estimates of its equity value — with more than half owned by investors in its bonds. The £465m of secured bonds mature in August next year, and the unsecured £200m in August 2022.
Perella Weinberg Partners and Latham & Watkins are advising the bondholder group. Houlihan Lokey and Kirkland & Ellis are advising PizzaExpress.
PizzaExpress declined to comment. Hony could not be reached for comment.
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