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Morning Briefing for pub, restaurant and food wervice operators

Tue 18th Aug 2020 - PizzaExpress to shut 73 UK sites as it undergoes CVA
PizzaExpress to shut 73 UK sites as it undergoes CVA: PizzaExpress is to undergo a company voluntary arrangement (CVA that will see 73 of its 449 UK restaurants close, resulting in the loss of 1,100 jobs. The company said the CVA, which is being led by Deloitte, would also reduce its “unsustainable” rental cost base. It stated: “Although the majority of PizzaExpress’ UK restaurants were trading profitably before lock-down, Ebitda across the estate had been declining for the past three years. In addition, since March this year the covid-19 crisis has caused significant disruption to the UK's entire casual dining sector. The unavoidable reduction in revenue as a result of the lock-down, combined with higher costs associated with reopening restaurants and uncertainty about the shape of the UK economy’s recovery, mean the group’s rental cost base is no longer sustainable. The CVA proposed is designed to reset the group’s leasehold obligations and allow for a smaller and better-invested UK restaurant estate. The CVA will seek to achieve this through a combination of reduction in outstanding arrears, reduced rental agreements, a temporary move from quarterly to monthly rents and other measures. Regrettably, the CVA proposals also include the permanent closure of 73 restaurants, which will impact 1,100 team members.” PizzaExpress will seek approval of the CVA proposals from its creditors by way of a virtual meeting on Friday, 4 September. UK and Ireland managing director Zoe Bowley said: “The announcement of the CVA proposal follows a period of constructive dialogue with the British Property Federation (BPF) and a broad range of our landlords. We have taken onboard their feedback and accommodated their requests as far as possible. Unfortunately, the impact of the global pandemic has meant we have had to make some incredibly tough decisions to safeguard PizzaExpress for the long term. Today we have confirmed 73 of our pizzerias are proposed to close permanently. In most cases, there is another PizzaExpress nearby, either already open or reopening soon, to welcome our customers. Our focus is on our people whose jobs are impacted and we will be doing everything we can either to redeploy them or to support them in finding roles elsewhere. Hard as this process is, it will protect the jobs of more than 9,000 of our colleagues and provide a strong footing for PizzaExpress to meet future challenges and opportunities.” BPF chief executive Melanie Leech added: “These situations are never easy, particularly now for the retail, hospitality and leisure businesses on our high streets at the sharp end of the covid-19 pandemic. Property owners, however, need to take into consideration the impact on their investors, including the millions of people whose savings and pensions are invested in commercial property, as they vote on any CVA proposal. PizzaExpress and Deloitte engaged with the BPF before launching this CVA proposal. This has provided us an opportunity to improve understanding of property owners’ interests and concerns, but ultimately it will be for individual property owners to decide how they will vote on the CVA.” As previously reported, the CVA is part of a wider restructuring of the business plan to shore up its finances and PizzaExpress has also hired advisers from Lazard to lead a sale process. PizzaExpress said an agreement has been reached with certain of its secured creditors and its majority shareholder, Hony Capital, “for a holistic recapitalisation and restructuring transaction that will significantly strengthen the group and provide funding to deliver its future growth plan”. The restructuring involving a significant de-leveraging of the group’s external debt, from £735m to £319m; extension of maturities; and potentially the transfer of majority ownership of the group to its secured noteholders. It also involves a major recapitalisation with the provision of up to £144m of committed new facilities to support the future development of the group’s business. Of the funds, £70m is available to support reopening PizzaExpress restaurants in the UK after an extended period of closure and further strategic development, and £74m is available for utilisation to refinance the group’s existing super senior debt facility, if required. The restructuring also involves the divestment of the group’s mainland China business. PizzaExpress said if the sale process does not result in any third party providing a bid for the group that is higher than the bid of the holders of the group’s secured notes, the holders of the senior secured notes will acquire the business, with individual holders being entitled to receive shares (pro rata) in a new holding company of the group and £200m of new senior secured notes, due in 2025.

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