Pizza Hut Franchise Owner Who Is In Debt Of US $ 1 Billion

Pizza Hut. (Photo: Twitter @pizzahut)

JAKARTA - NPC International Inc., the owner of the Pizza Hut franchise in the United States (US), is currently in debt worth US $ 1 billion. The owner of 1,600 Pizza Hut outlets (including the Wendys restaurant) is even considered unable to pay the debt of 800 million US dollars.

Currently, NPC International, as quoted by Bloomberg, is exploring restructuring options, including filing for bankruptcy. The company is fighting for the debt restructuring to take place out of court.

To that end, NPC, supported by private investment firm Eldridge Industries LLC, is partnering with restructuring advisors at law firm Weil Gotshal & Manges and investment bank Greenhill & Co. as well as operational advisor to AlixPartners LLP.

Moody's rating agency, Wednesday February 19, downgraded NPC International Inc. up to three levels. Moody's move was then followed by S&P Global Rating on Thursday, February 20.

Sources familiar with the matter said that on January 31, 2020, NPC International failed to make interest payments and had asked for a suspension of payments in line with the decline in sales in its Pizza Hut division.

The NPC had told lenders earlier this year that they would defer payment of most debts to maintain cash flow.

For information, earlier this year, the company received a new loan of 35 million US dollars to inject cash into the company's operations and increase liquidity.

Pizza Hut is struggling with rising labor and food costs. At the same time, the number of subscribers decreased.

To that end, the company is trying to expand its range of services by opening a number of locations for direct delivery to consumers. This strategy is pursued in facing tough competition with Domino's Pizza Inc. and Papa John's International Inc.

Quoted from Bloomberg, NPC International operates more than 1,225 Pizza Hut and more than 385 Wendy's stores throughout Uncle Sam's country. For the record, sales growth at the same store (same sales store growth / SSSG) Pizza Hut in the fourth quarter of 2019 fell 4 percent.

NPC International's income before interest, taxes, depreciation and amortization fell 16 percent to US $ 16.2 million, compared with the same period last year.

In the third quarter of 2019, NPC International reported a debt to equity ratio (DER) of 7.66 times. The ratio caused the company to violate the revolver agreement which required the leverage to remain below 7 times.

NPC owners, including Eldridge, run by former president of Guggenheim Partners Todd Boehly, have injected cash into the company to keep it compliant.

Meanwhile, Yum! Brands Inc., an issuer listed on the New York Stock Exchange with the stock code YUM, as the operator of A&W Restaurants, East Dawning, KFC, Long John Silver's, Pizza Hut, Taco Bell, and Wing Street, is struggling in the food industry, when consumers want their food was delivered.

Chief Financial Officer Yum! Brands Inc. Chris Turner acknowledges the financial problems facing corporations. "Pizza Hut's short-term performance in the US is choppy," he said, as quoted by Bloomberg, early February.

Yum Chief Executive Officer David Gibbs said earlier this month that he would strive to give Pizza Hut a stronger foothold to continue to grow.

We're delivering nearly 30,000 slices of free pizza in these bad boys for the big game. @FordTrucks 🍕🏈 pic.twitter.com/SUcRRLnfXg

- Pizza Hut (@pizzahut) February 1, 2020

Like many of its competitors, as a franchisee, Yum has in fact transferred most of the risks associated with labor, food costs, and other expenses to restaurant operators, rather than the company directly.

On Thursday February 20, Yum's share price fell 2.9 percent to $ 102.16, more than the drop for the S&P 500 Index. Yum's stock market value is now around $ 31.3 billion.

Meanwhile, the market value of its competitor, Domino's Pizza, is around US $ 15.1 billion, after its share price jumped 24 percent as fourth-quarter profit exceeded estimates.

In Indonesia Pizza Hut, A&W Restaurants to KFC are already familiar. However, the license holders are different. Currently, KFC is held by PT Fast Food Indonesia Tbk. (FAST), while Pizza Hut is held by PT Sarimelati Kencana Tbk. (PZZA).