Pizza Express needs New RCF - presto
All,
Well, scrapping the Q&A was a bit useless, but well advised. So what do we thing we have learned?
The RCF needs to be addressed before February:
- Management expect a cash outflow for the year. In Jan/Feb 2019 PE already had to draw their small RCF to pay the coupon, although we do not know the amount. In August that was repeated, if only for £3m, suggesting the company had £17m headroom. Thus there is not much scope for outflows before Hony are seriously gambling the farm and credit insurers / suppliers could add £25m of fuel to the fire any time - and probably will.
PE are looking to up-size the RCF to £70m:
- References today to working capital (suppliers / credit insurers = £25m) and UK+IR refurbishments showing positive results (CapEx backlog = £30m?) plus the current £20m suggest that Hony are looking to upsize the S.Sr. RCF to the full £70m under the documentation.
No restructuring yet:
- Given Hony’s upside from an aggressive restructuring (Administration) would be no more than the £8.5m cash Interest saved on the remaining £98m of 2Lns, it is unlikely they would want to start a war.
- Hony’s best option is to PIK their portion of the 2Lns and thus free up debt carrying capacity for a £70m S.Sr. RCF, invest the cash, get a clean audit opinion for 2020 and hope to show enough positive momentum in a year’s time.
Some legal and other angles:
- Management said it had been able to work with suppliers to stockpile at minimum extra “cost”. We are wondering if that was meant to mean "cash outflow" - i.e. suppliers are sending their bills later or have longer payment clauses for such extra inventory, or if it means “cost” and thus that the P&L may be inflated for a while before being deflated at a later date.
Information asymmetry:
- This question had been asked before and the company has not given information. Except that it should be worthwhile establishing at this juncture that the shareholder - controlling the board - should presumably have that information. And that shareholder is just engaged in the open bond market in a major way - holding that information.
So most likely we will not have a major restructuring at this juncture, but Hony are playing for time, looking to maximise their equity option while minimising any frustration caused to the SSNs. Thus we would expect Hony to offer the SSNs to provide the needed S.Sr. cash, maybe in return for some amendments which they will not oppose in the 2Lns. If Hony struggle to put this in place by February, perhaps there will be a bridge work-around at first. But we do expect some further news in the days following December 5th - the end of the tender period.
Wolfgang