Hony Capital issues extra £55m PizzaExpress bonds to buy Hong Kong franchisee, strong performance since buy-out: PizzaExpress owner Hony Capital is issuing an extra £55m of bonds to allow the early acquisition of its Hong Kong-based franchisee, which operates 27 sites. Rating agency Moody’s, reviewing the transaction, upgraded PizzaExpress from stable to positive based on the company’s strong performance since it was acquired in August 2014 with Ebitda up 14.9% in its first three financial quarters. Moody’s stated: “The change in outlook from stable to positive reflects the company’s strong trading performance and deleveraging since the leveraged buy-out (in August 2014). Year-on-year Ebitda growth was 14.9% in the first three trading quarters to 5 April 2015, whilst Moody’s pro forma adjusted leverage has reduced from 7.3x to 6.5x in the last 12 months. As a result of the China acquisition, leverage will increase slightly to 6.8x, whilst the acquisition of an existing franchisee, and the strong local support from Hony Capital serve to de-risk the acquisition. PizzaExpress negotiated a call option first exercisable in 2016 for the purchase of its China franchise operation at the time of the leverage buy-out. It has now agreed an earlier transaction to gain control and benefit sooner from its rapid growth potential. The acquisition appears to be of low execution risk given the full transfer of staff and operations to PizzaExpress. The company plans to accelerate the roll-out of new restaurants in China which is expected to be financed by internally generated cash flows. The support of its majority owner Hony Capital, which has expertise in the Chinese retail sector, is an important factor in delivering this roll-out strategy. Although there is substantial growth potential from an emerging middle class and demand for Western products, the Chinese operation will remain a relatively small part of the overall group in the medium term. PizzaExpress has reported a strong trading performance since the leveraged buy-out, with like-for-like sales in the UK and Ireland increasing by 6.4% in the three trading quarters to 5 April 2015. The UK casual dining market has rebounded very strongly over this period and PizzaExpress has also exceeded market growth, supported by effective promotional activity and yield management and a record performance over the Christmas period. Trading has been further supported by new restaurant roll-outs and reported Ebitda in this period has increased to £77 million, 14.9% higher than in the prior year. The ramp-up of recently added restaurants is expected to add further sales and Ebitda growth in the short term. For the 2014 full-year, it reported revenues of £391 million and Ebitda of £89 million. As at 5 April 2015 it operated 449 sites in the UK and Ireland as well as 77 international sites principally in China, the Middle East and India.” PizzaExpress was acquired by Hony Capital for £895m in August 2014.