Pizza Express - last minute orders

All, 

In the last minute the Pizza Express' deal ultimately divides the company, but leaves Remain-Co at least with the 93 international sites (~50% franchised) outside of the 60 sites in Mainland China, which go to Hony and other current shareholders. We had been critical of such a solution, but at least PE did not lose all of international. The proposed IP deal is customary and lasts 5 years.

Note that the SUNs may have to be crammed down as a class in a plan process if they fail to approve the CVA. We should learn about this next week or by the 17th, but the SUNs seem to have little incentive.

Nonetheless, we are confident that the transaction can be executed. While the deleveraging is significant however, it still leaves trough debt of some 4x 2019 EBITDA (incl. China) on the books, which could still prove significant, depending on post Covid-19 outlook from here.

Corner Stones:

- Deal has 75% consent from SSNs and Hony

- Hony retain Mainland China operation (not all of international) and together with other existing shareholders receive 1% of equity in the Non-China business via BidCo SPV.

- Transfer of equity in Pizza Express Finance 2 (PEF2) to BidCo SPV, controlled by holders of existing SSNs.

- CVA of Pizza Express Restaurants Limited (PERL)

- The SSNs and SUNs are being asked for their consent by August 10th (each 75% by value and 50% by number assuming a SoA). Given the 1% of equity on offer to the SUNs, this looks unlikely. But their consent may not be strictly required as a pre-pack SoA looks relatively straight forward and Lazard are already mandated to run a pro-forma auction. 

CVA of PERL: 

- Requires 75% in value of all unsecureds and 50% in value of creditors not connected with the company.

- Requires SSF consent by 66+2/3% and 50.1% by each the SSNs and the SUNs. 

- Condition precedent to subsequent D/E swap (below).

Subject to the CVA being successful:

SUNs receive 1% of equity in BidCo SPV.

SSNs: 

- to own 63% of BidCo SPV.

- receive £200m New SSNs, English law, with interest of 8% / 9.5% PIK Toggle and a 5-year maturity.

- All SSN holders are invited to participate in New Money Facility (NMF). 

- SSN Ad-Hoc group back-stops New Money Facility (NMF).

NMF:

- ranks in right of payment p.p. with SSRCF and New SSN prior to acceleration, but junior post acceleration

- NMF participants are entitled to 35% of BidCo SPV equity.

- £144m for a 5% fee, £74m to refi SSF, £40m additional liquidity (£49m incl. OID) after final bids of M&A process are received and a delayed tranche from September 30th of £20m (£21m incl. OID). Interest is 7.5% Cash + 9% PIK. Maturity is 4.5 years.

SSF remains in place until 30th April 23. Receives full £74m pay-down.

Wolfgang