Pizza Express is set to be taken over by its bondholders, with the possibility of restaurant closures as the high street chain struggles with the loss of revenues during the coronavirus pandemic.
The chain’s Chinese owner, Hony Capital, could lose control of the company as part of a debt-for-equity swap.
A group of investors in bonds worth £465m 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 $12bn (£9.5bn), 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 a £900m 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, particularly in its UK home market, with the casual dining sector under intense pressure 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 £36m for 2020 – £30m 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 £100m 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 £200m in unsecured loans due in August 2022. Overall debt reached £1.1bn 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.
