NPC International, the largest franchisee of Pizza Hut restaurants, filed for Chapter 11 bankruptcy on Wednesday as the decline of the Pizza Hut brand continues to eat into its profits.
The company has $903 million in debt and has pre-negotiated a restructuring agreement with about 90% of its first lien lenders and 17% of second lien lenders.
As CNN reports, privately-held NPC, which also franchises Wendy’s restaurants, has been dealing with “a perfect storm of problems” that led to the Chapter 11 filing, including coronavirus-related shutdowns, its massive debt burden and rising labor and food costs.
Amid declining sales at Pizza Hut, it had previously obtained $35 million in emergency financing from lenders after warning it would exhaust its working capital by mid- to late January 2020. NPC said Wednesday it intends to use the bankruptcy process to “engage in further discussions with its brand partners, landlords and other creditors to achieve a consensual Chapter 11 plan of reorganization.”
The challenges facing the company “have been magnified recently by the impact and uncertainty of COVID-19, and we believe it is necessary to take proactive steps to strengthen our capital structure,” Jon Weber, CEO of NPC’s Pizza Hut division, said in a news release.
NPC operates more 1,600 franchised restaurants, 1,200 of them in the Pizza Hut system. In a court declaration, Chief Restructuring Officer Eric Koza said the Pizza Hut restaurants have been “a significant drag on [its] profitability due to a lack of sales growth and a significant inflationary cost environment.”
“The Pizza Hut business has especially been impacted by a brand image and product offering that has lagged behind its competitors,” he added, noting that “the significant shift and increasing prevalence and use of third-party delivery services, such as DoorDash and GrubHub, has also increased the competition for delivery traffic and off-premises orders.”
According to NPC, its Pizza Hut restaurants saw “a substantial spike” in sales as the COVID-19 pandemic reduced options for food delivery and take-out but Wendy’s has been hit by decreases in sales as a result of a “dramatic decline in foot and drive-thru traffic.”
Presley Ann/Getty Images for Pizza Hut/em>