Pizza Express set for talks over £1bn debt pile

[sal]

Classic move by Private Equity firm:

1) Buy a OKish doing, well recognised and respected brand
2) Saddle it with debt up the wazoo
3) Pay out generous dividends and compensation packages to the directors
4) Enter administration

[scooterscot]

Presumably the debt is from rapid growth and buying premises?

Funds used to buy controlling shares.

It's not so different to over leveraged home buyers at the height of the housing market borrowing more cash than they could afford. Irresponsible lenders or smart ass bond holders about to collect a lot of assets.

[scooterscot]

From the FT

Hony Capital bought PizzaExpress, which was founded in 1965, in a £900m leveraged buyout, leaving the company loaded with debt at a time when the casual dining sector was beginning to suffer from huge oversupply and rising costs.


PizzaExpress is one of the largest casual dining chains in the UK with 480 sites. It has a further 148 sites across 11 other countries with most of its efforts focused on China.


Mark Brumby, an analyst at Langton Capital, pointed out that at its current levels, PizzaExpress’ debt is equivalent to £1.6m per restaurant — much more than the value of each site itself.


A tweet from Mr Brumby received heavy traffic on the social media site, provoking angst about the chain’s troubles from devoted pizza lovers.


“It has 14 times debt to ebitda. Even for a company with a large number of freehold properties, this would be extremely high. For a leasehold company, it is almost intolerable,” said Mr Brumby.

I don't understand why the government allows a private equity business to get away with this.

Just when you thought the highs-street couldn't look any sadder.

[d000hg]

Presumably the debt is from rapid growth and buying premises?

Or does PE run as a franchise?

[BrilloPad]

This is criminal. To get into this position in only 5 years from a business that's been operating since 1965. Where was the due diligence from those in charge of a company as old and as successful Pizza Express? How many more businesses up and down the land are in this position? Corporate debt levels are insane.

This could be our black swan, I mean, how much time came to pass to make thousands of people redundant in the Thomas Cook collapse? 48 hours? Pizza Express has 14,000 staff.. if they go under it'll be Thomas Cook Mk II+. What if ten more companies do this? Will the state be able to cope with this loss in revenue?

The business of government has been anything but normal these past 5 years. Convenient isn't it that in those same 5 years so much debt was dumped on those businesses. One wonders about the connected interests between these private equity firms and MPs.

It keeps happening. Remember rover?

[scooterscot]

Maybe they invested in Bitcoin?

If they did that five years ago Pizza Express could be the new government.

[scooterscot]

This is criminal. To get into this position in only 5 years from a business that's been operating since 1965. Where was the due diligence from those in charge of a company as old and as successful Pizza Express? How many more businesses up and down the land are in this position? Corporate debt levels are insane.

This could be our black swan, I mean, how much time came to pass to make thousands of people redundant in the Thomas Cook collapse? 48 hours? Pizza Express has 14,000 staff.. if they go under it'll be Thomas Cook Mk II+. What if ten more companies do this? Will the state be able to cope with this loss in revenue?

The business of government has been anything but normal these past 5 years. Convenient isn't it that in those same 5 years so much debt was dumped on those businesses. One wonders about the connected interests between these private equity firms and MPs.

[BrilloPad]

Maybe they invested in Bitcoin?

[edison]

Clucking bell... how the hell does folding dough and adding some tomato puree result in a £1billion worth of debt?

This company is bankrupt even if they're not willing to admit it.

source: Pizza Express set for talks over GBP1bn debt pile - BBC News

Bought by a Chinese Private Equity company and loaded with debt by the new owners.

It was a profitable company making £90m profit when bought in 2014. But it's debt is equivalent to £1.6m per restaurant which is far more than each one is worth.

Private Equity acquisitions used to be known as leveraged buyouts in the 80s but eventually became a byword for excess greed and risk taking. Private Equity sounds grander but it's the same method of financial engineering and potential low risk/high reward for the people who put up the original money. Here's one explanation if you're interested:

How private equity firms are designed to earn big while risking little of their own | LSE Business Review

[greenlake]

Because the food is Shyte

Say it ain't so....



World's saddest pizza after restaurant runs out of vegan cheese - BBC Three

[Scruff]

Because the food is Shyte, and they are just another business run on The Peter Principle.

Greed and Gearing don't Go Good, unlike alliteration...

[scooterscot]

Clucking bell... how the hell does folding dough and adding some tomato puree result in a £1billion worth of debt?

This company is bankrupt even if they're not willing to admit it.

Pizza Express has reportedly hired financial advisers ahead of a meeting with lenders to review its debt situation.

The 470-store chain made losses for the last two years as its operating profits were more than offset by high interest payments on its £1.1bn debt pile.


Sales in the UK and in its 150 overseas restaurants both fell last year.


Founded in 1965, Pizza Express employs 14,000 people and is now owned by Chinese private investment firm Hony.


The Chinese company bought it from UK private equity firm Cinven in 2014. Few companies emerge from private equity deals without being laden with borrowing.


Interestingly, Pizza Express uses exactly the same font and layout for its financial statements as it does for its menus. Unlike the menu, however, there are some quite unappetising items in its financials.


Most off-putting of all, of course, is the enormous debt number. The interest on that £1.1bn is costing the company £93m a year, which wiped out all its operating profit last year - and then some.


In fact, the debt payments have pushed Pizza Express into the red for the last two years with a loss of £55m last year alone.


'No imminent danger'
The frustrating thing for the business is that it is making a reasonable amount of cash. It's for that reason, its auditors were happy to conclude the chain is a viable going concern when it signed off its accounts in April this year despite the company's debts being worth more than its assets.


To be clear, Pizza Express is not in imminent danger of going bust. It has until 2021 before it needs to start paying back £600m to its outside creditors. (The other £500m is a loan from its Chinese owners).


But debt is a serial company killer - just ask Carillion or Thomas Cook. It can suffocate a company, so the earlier you try and address the issue the better.


Bonds in Pizza Express are selling for 84p for every £1 worth of loan. That means that investors do not think those lenders will get all their money back.


The casual dining sector is littered with names which have been through some sort of insolvency process. Prezzo, Byron, Carluccio's needed to close stores and ask creditors to agree to rent reductions, while Jamie's Italian went bust.


If Pizza Express is going to last another 50 years some sort of debt restructuring looks inevitable. Getting it done in a brutal high street environment will not be straightforward.

source: Pizza Express set for talks over GBP1bn debt pile - BBC News