PizzaExpress, a casual dining chain, has experienced significant financial turmoil over the past few years. In 2020, the company underwent a major debt restructuring that saw its total gross debt slashed from $735 million to $319 million. This involved bondholders taking control, with hedge funds assuming ownership after paying down over $400 million of debt. The restructuring also led to the closure of 73 restaurants and 1,100 job cuts as the company struggled with a $350 million loss even before the pandemic hit.
Despite an optimistic outlook in late 2021 as the company pressed on with new openings and signaled profitability after refinancing, PizzaExpress continues to face persistent headwinds. High energy costs, inflation, rising living expenses, and sluggish consumer confidence have impacted operational performance since the pandemic. The group's revenue was down 3.9% year over year to $110.1 million in the third quarter ended September 29, 2024, and post-IFRS 16 EBITDA declined 11.7% year over year to $21.1 million.
Currently, PizzaExpress's main shareholders, Cyrus Capital Partners and Bain Capital, are considering an equity injection of approximately $40 million to $50 million to facilitate an amend-and-extend of the company's $335 million bonds due in 2026. A straight refinancing is challenging given the bonds' 21.6% yield and difficult macroeconomic environment. The company's wages and salaries, amounting to about $161.5 million or 35.5% of sales in FY24, represent the largest component of its cost base, making it particularly vulnerable to rising employer national insurance and minimum wage increases.
The company's debt structure includes $335 million in Senior Secured Notes due July 15, 2026, with a 6.750% rate, and $168.3 million in lease liabilities, bringing the total debt to $503.3 million. After accounting for cash and equivalents, net debt stands at $447.6 million, resulting in a net leverage of 5.1x LTM Reported EBITDA. Octus analysts noted that an amend-and-extend of the Senior Secured Notes is the most viable option to navigate the challenging near-term macroeconomic environment.
