Pizza Express to Use Part 26A Restructuring Plan

On 30 September 2020, the English High Court granted PizzaExpress Financing 2 plc ("Company" or "Pizza Express") permission to proceed to the creditors' meeting stage of its proposed Part 26A Restructuring Plan. Pizza Express is the second company (after Virgin Atlantic Airways [1]) to use the new Restructuring Plan under Part 26A of the Companies Act 2006.

At its convening hearing, the Company proposed that the following three classes of creditors be compromised:

• Creditors pursuant to NY law governed senior secured notes (aggregate value of £465m) due 2021 (the "SSNs");
• Creditors pursuant to NY law governed senior unsecured notes (aggregate face value of £200m) due 2022 (the "SUNs"); and
• Pizza Express Financing 1 plc (the Company's sole shareholder, and also a creditor under certain intercompany loans) ("Plan Member").

The Company also has additional indebtedness in the form of a super senior loan facility which was put in place in April 2020 to refinance £30m which was maturing in August 2020, and to provide £40m of new money. This super senior facility is not subject to any compromise under the Restructuring Plan.

What is the Company proposing to the relevant creditors under the Restructuring Plan?

The Restructuring Plan includes a combination of corporate reconstruction, debt-to-debt swaps and debt-to-equity swaps.

• The share capital of the Company will be transferred from the Plan Member to a new company ("Bidco SPV"). Bidco SPV will be a wholly owned subsidiary of another new company ("Holdco SPV"). In exchange for the transfer, the Plan Member benefits from release of its liabilities in respect of the SSNs (Plan Member is a guarantor) and SUNs (Plan Member is the issuer).
• SSNs will be discharged and converted into "New SSNs" issued by Bidco SPV with a reduced principal amount of £200m.
• SSN Holders will receive 63% of the equity in the Restructured Group.
• SSN Holders will be entitled to, but not obliged to, lend new money under a £144m new money facility to be borrowed by Bidco SPV to provide working capital for the Restructured Group ("New Money Facility"). The New Money Facility carries 7.5% interest per annum, or may be capitalized at a rate of 9% per annum at the election of Bidco for the first 24 months. The New Money Facility matures in 4.5 years.
• SUNs will be discharged as they are "out of the money" but the SUN Holders will receive 1% of shares in the Restructured Group.

Will the s.901G cram-down mechanism be used?

Section 901G of the Companies Act 2006 allows the court to override a dissenting class of creditors and essentially "cram" them down, provided, (i) the dissenting class would not be any worse off under the arrangement compared to whatever would most likely happen in the alternative, and (ii) 75% of a class which would receive a payment or have a genuine economic interest in the company in the alternative situation have voted in favour of the compromise.

There was no need for s.901G to be used for Virgin Atlantic Airways as all creditor classes voted in favour of the Restructuring Plan. In relation to Pizza Express, 93.2% of the SSNs acceded to a lock-up agreement agreeing to vote in favour of the Restructuring Plan, however, only 47% of the beneficial owners of the SUNs acceded to the lock-up agreement. It remains to be seen whether this creditor class will vote in favour of the Restructuring Plan, and if it does not, whether it will be crammed down.

Other steps being taken by the Company

• The Company is also undertaking operational restructuring with the aim of, among other things, reducing the size and cost of its restaurant portfolio. This is being implemented by way of a CVA which was launched on 18 August 2020 in order to compromise liabilities to the Group's landlords. The CVA was approved by 89.3% of those entitled to vote. The approval of the CVA was a condition to the financial restructuring.
• As the SSNs and SUNs are governed by New York law, the Company is seeking Chapter 15 recognition of the Restructuring Plan. On 5 October 2020, Pizza Express filed a petition in the U.S. Bankruptcy Court for the Southern District of Texas for Chapter 15 recognition of its Part 26A Restructuring Plan.

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[1] Virgin Atlantic Airways' Restructuring Plan was sanctioned on 2 September 2020.