Pizzaexpress Financing 2 Plc
| Jurisdiction | England & Wales |
| Judge | Sir Alastair Norris |
| Judgment Date | 30 September 2020 |
| Neutral Citation | [2020] EWHC 2873 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CR-2020-003816 |
| Date | 30 September 2020 |
[2020] EWHC 2873 (Ch)
Sir Alastair Norris
Case No: CR-2020-003816
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY DIVISION
7 Rolls Building
Fetter Lane
London EC4A 1NL
Mr D Allison QC AND Mr R Perkins appeared on behalf of the Plan Company
Ms F Toube QC AND Mr A Al-Attar appeared on behalf of the Ad Hoc Group
APPROVED JUDGMENT
The COVID-19 lockdown and the subsequent COVID-19 restrictions threaten to devastate whole sections of the casual dining business sector which was already facing a challenging business environment.
The Pizza Express Group is caught up in this turmoil. The Group had in the 2019 financial period reported an incurred loss of £354 million, and temporary closure followed by restricted trading has only worsened that position.
On 20 March 2020, the Pizza Express Group closed all of its 449 company-owned restaurants in the United Kingdom and furloughed all of its 9,500 restaurant staff. It also closed 19 of its restaurants in Ireland.
With the easing of restrictions in July, it began re-opening restaurants for dine-in customers and also extending its dine-out offering, but that program has been disrupted by the renewed work-from-home directive and its impact upon the office worker market.
As at 25 September 2020, 348 of the 449 venues in the United Kingdom had re-opened and 17 of the 19 Irish venues. But the consequences are dramatic. Recent cashflow forecasts indicate negative cashflow for the Group as from the end of the week commencing 9 November 2020 imperilling its ability to continue as a going concern and raising the real prospect of a value destructive administration or other insolvency process.
The Group's Board considers that the current level of debt is unsustainable and the financial position is not sufficiently robust to continue as a going concern. The Group therefore seeks to implement a financial and operational restructuring. The means of doing so is the promotion of a restructuring plan under Part 26A of the Companies Act 2006 as inserted by the Corporate Insolvency and Governance Act 2020, a plan being promoted by Pizza Express Financing 2 plc (“the Plan Company”).
The Plan Company is incorporated in the United Kingdom and is a wholly-owned subsidiary of Pizza Express Financing 1 plc (“the Plan Member”). The Plan Member is itself a direct subsidiary of an ultimate holding company which belongs as to about 55 per cent to funds managed by Hony Capital and as to the balance by Chinese interests and the Group's management. In the organogram of the Group's structure, the Group operating and property-holding companies sit below the Plan Company.
The financial restructuring proposed is in part a debt-for-equity swap and in part an old-debt-for-new-debt swap. The ultimate objectives of the restructuring are six: (1) to provide the restructured Group with a de-levered balance sheet with a lower overall gross debt; (2) to reduce the overall cash debt service costs and provide flexibility to service the debt incurred; (3) to inject additional liquidity to fund the transaction costs and to ensure that the restructured Group has adequate liquidity to trade and to grow; (4) to mitigate the risk of the Plan Member, the Plan Company or any other Group company having to file for administration; (5) to avert any imminent refinancing risk in relation to the Group's existing debt which is imminently due to mature; and (6) to provide Plan creditors with the opportunity to benefit from any potential upside from the implementation of the turnaround strategy by swapping some of the debt for an equity participation.
Since I shall be concerned to consider the present rights of creditors which are to be released or varied and their prospective rights by way of compromise under the proposed plan, I should describe at the outset the present financing arrangements.
The Plan Company
The Plan Company has the benefit of a £70 million super senior loan granted in April 2020 and due to mature in April 2023. It is governed by English law. It was in effect an emergency measure put in place.
Secondly, it has the benefit of £465 million worth of lending under senior secured notes on which there is also some accrued unpaid interest. These notes are due to mature in August 2021 and they are governed by New York law. In argument, these have been called “the Existing SSNs”. The Plan Company is the issuer of the Existing SSNs.
The Plan Member
The Plan Member has £200 million worth of senior unsecured notes plus some unpaid interest. These notes are due to mature in August 2022 and are governed by New York law. In argument these were called “the SUNs”. The Plan Member is in default. A Contribution Deed of 1 September 2020 provides that the Plan Member has a right of contribution against the Plan Company and has thereby made the Plan Company effectively a primary obligor under the SUNs. Secondly, the Plan Member has the benefit of a subordinated shareholder's loan from the ultimate holding company, the balance on which is some £546 million. Under an intercreditor agreement entered into in 2014, this ranks at the bottom of the waterfall.
Both the Existing SSNs and SUNs are issued in global note form under which the beneficial owners are entitled to be treated as contingent creditors (see Castle HoldCo 4 Limited [2009] EWHC 3919). They are traded on Euroclear and Clearstream.
Neither the super senior loan nor the shareholder's loan to which I have referred is to be varied or compromised. The instruments that are to be varied or compromised are the Existing SSNs and the SUNs.
What is Proposed?
From negotiations with an Ad Hoc Group of holders of 78 per cent of the Existing SSNs, which commenced in April 2020, emerged a proposal. It is the subject of a “lockup agreement” under which 93.2 per cent of the Existing SSN holders and 47 per cent of the SUN holders have agreed to support the proposal.
There are six elements to the restructuring plan which is being proposed. Firstly, there will be a new corporate structure under which the share capital of the Plan Company and its intercompany receivables will be transferred from the Plan Member to a new company called at the hearing “BidCo SPV”. This new company will be a wholly-owned subsidiary of another new company, called at the hearing “HoldCo SPV”. HoldCo SPV, BidCo SPV, the Plan Company and theoperating and property holding subsidiaries to which I have referred will form the restructured group.
Secondly, the Existing SSNs will be discharged. They will be converted into a series of new senior secured notes issued by BidCo SPV but with a reduced principal amount of £200 million. They will mature five years from the closing of the financial restructuring, thereby providing an extension in funding.
Thirdly, the Existing SSN holders will receive 63 per cent of the equity in the restructured group in the form of shares in HoldCo SPV.
Fourthly, the Existing SSN holders will be entitled (but not obliged) to lend new money to the restructured group by participating in a £144 million new money facility to be borrowed by BidCo SPV. This new money facility will in the event of enforcement rank senior to the new SSNs to be issued but junior to the super senior facility. In order to create an incentive for Existing SSN holders to participate in the new money facility, there is an allocation of 35 per cent of the shares in HoldCo SPV available to new money facility participators.
Fifthly, the SUNs will be discharged and will not be converted into any new debt instruments. As matters stand, they are out of the money. There would be a nil return to them in the event of an administration. The SUN holders will however in compensation receive one per cent of the equity in the restructured group by an allocation of shares in HoldCo SPV.
Sixthly, the Existing SSNs and SUNs are, as I have indicated, governed by New York law, so the Plan Company intends to apply for recognition of the Plan under chapter 15 of the US Bankruptcy Code. The plan provides for the appointment of a foreign representative to make such an application.
The present application is made under Part 26A of the Companies Act 2006. It is a convening hearing proposing the convening of three meetings to consider the proposal I have outlined.
Before turning to the detail, I should make two general points. The first is that this is the convening...
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