Pizza Express set for talks over £1bn debt pile

Pizza Express has reportedly hired financial advisers ahead of a meeting with lenders to review its debt situation.

The 470-store chain made losses for the last two years as its operating profits were more than offset by high interest payments on its £1.1bn debt pile.

Sales in the UK and in its 150 overseas restaurants both fell last year.

Founded in 1965, Pizza Express employs 14,000 people and is now owned by Chinese private investment firm Hony.

The Chinese company bought it from UK private equity firm Cinven in 2014. Few companies emerge from private equity deals without being laden with borrowing.

Interestingly, Pizza Express uses exactly the same font and layout for its financial statements as it does for its menus. Unlike the menu, however, there are some quite unappetising items in its financials.

Most off-putting of all, of course, is the enormous debt number. The interest on that £1.1bn is costing the company £93m a year, which wiped out all its operating profit last year - and then some.

In fact, the debt payments have pushed Pizza Express into the red for the last two years with a loss of £55m last year alone.

'No imminent danger'

The frustrating thing for the business is that it is making a reasonable amount of cash. It's for that reason, its auditors were happy to conclude the chain is a viable going concern when it signed off its accounts in April this year despite the company's debts being worth more than its assets.

To be clear, Pizza Express is not in imminent danger of going bust. It has until 2021 before it needs to start paying back £600m to its outside creditors. (The other £500m is a loan from its Chinese owners).

But debt is a serial company killer - just ask Carillion or Thomas Cook. It can suffocate a company, so the earlier you try and address the issue the better.

Bonds in Pizza Express are selling for 84p for every £1 worth of loan. That means that investors do not think those lenders will get all their money back.

The casual dining sector is littered with names which have been through some sort of insolvency process. Prezzo, Byron, Carluccio's needed to close stores and ask creditors to agree to rent reductions, while Jamie's Italian went bust.

If Pizza Express is going to last another 50 years some sort of debt restructuring looks inevitable. Getting it done in a brutal high street environment will not be straightforward.