Concerns raised over PizzaExpress debt

The cost of insuring PizzaExpress’ debt against default has risen to its highest level due to concerns over its borrowing, the Financial Times has reported.

Challenges in the UK casual dining market and the cost of overseas expansion has pushed debt net debt levels up to £1.1bn, with interest charges of £93.1m, resulting in a pre-tax loss of £55m, as per its latest accounts filed at Companies House for 2018.

According to the FT, the price of the group’s senior unsecured bond, seen by the market as being most at risk in case of any default, is trading at less than 40% of its face value – down from the 80p that every £1 of debt was trading at a year ago.

Investors and analysts expect that the chain – which was acquired for £900m by Chinese private equity group Hony Capital in 2014 – will need to undergo financial restructuring, which could involve a debt-for-equity swap, with several investors already considering their options.

According to Companies House filings last month, PizzaExpress chairman and chief executive Jinlong Wang is now residing in Hong Kong, as the business looks to continue its growth in China. The business grew its international estate of company-owned sites to 104 restaurants last year (+26 sites).

Speaking at the time its accounts were published, Wang said: “The business outside the UK became increasingly significant in 2018 and our international markets now contribute almost 20% of group sales.” However, the business has still faced challenges in China, he said.

PizzaExpress reported flat like-for-like sales last year, with group turned up 1.6% to £543m, and underlying like-for-like sales up only 0.1%, excluding the impact of bad weather.