Sectors > Top Reports > Pizza Express Memo 140420

Pizza Express Memo 140420

Pizza Express. New £70m Super Senior Facility From HPS Shifts Likely Hony Strategy. Base Case SSNs Recovery c. 71 Cents. Still Avoid
PUBLISHED: 14 April 2020
SUBMARKET: Pizza Express, Top Reports, Top Reports,


Why Read?

  • Understand how the planned new £70m HPS Super Senior (SS) Facility likely represents a shift in Hony’s strategy around, and actions ahead of, an eventual restructuring of Pizza Express via a UK Scheme and what impact the new HPS Facility is likely to have on recovery prospects for Pizza Express Senior Secured Notes (SSNs) and Senior Notes (SNs)
  • Understand how tight Pizza Express’ liquidity could get over FY 20 with the forced closure of UK restaurants from midnight on 20/3/20 and risks around the new £70m HPS SS Facility 
  • Understand the recovery range we estimate on the SSNs and SNs in a restructuring via a UK scheme
  • Understand why the “Equitization & Refinancing” strategy for Hony may still make sense but is considerably less likely than previously
  • Understand the longer-term opportunities and threats to Pizza Express from the FY 20 coronavirus shock

What’s New?

  • Updated financial projections (including of liquidity by quarter and intra-quarter considerations), valuation (including potential UK scheme valuations of the business) and valuation sensitivity analysis in light of the forced closure of UK restaurants
  • Updated recovery rate analysis on Pizza Express’ SSNs and SNs in a UK secured debt transfer scheme
  • Updated monthly and weekly data on UK market-wide chain restaurant sales growth as a benchmark for forecasting Q1 20 for Pizza Express

Questions Answered

  • Why did Hony not itself lend into the Credit Facility carve-out to the SSNs Indebtedness and Lien covenants and allow Pizza Express to purchase or call the SNs, repositioning itself at the top (rather than bottom through its current ownership of the SNs) of Pizza Express’ debt stack?
  • Could the net cost to Hony of the Equitization & Refinancing scenario still make sense given potential long-term money multiple and IRR potential for the business in China?
  • What is the risk Pizza Express’ liquidity breaks in FY 20, in spite of the planned new £70m HPS SS Facility?
  • What are the key intra-quarter liquidity risks and how low do we believe liquidity could go intra-quarter?
  • How is working capital cash flow likely to behave over FY 20?
  • What negative UK LFL sales growth has Pizza Express likely already had to contend with in Q1 20 before facing what we expect will be a closure of its restaurants running through the entirety of Q2 20 and potentially into Q3 20?
  • What are the SSNs worth in a restructuring and at what level would they be worth buying?
  • What are the longer term opportunities and threats created by coronavirus for Pizza Express in the UK?

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