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PizzaExpress Owner’s Debt Plan to Meet Investor Opposition

Katie Linsell and Luca Casiraghi

(Bloomberg) -- A plan by the owner of PizzaExpress Ltd. to buy back almost half of the company’s 200 million pounds of unsecured notes faces resistance from at least two groups of bond investors, people familiar with the matter said.

Chinese private equity firm Hony Capital is seeking to purchase as much as 80 million pounds ($103 million) of the U.K. chain’s bonds in a move that may precede talks for a potential debt restructuring.

One of the two groups opposing the tender consists of investors who own the notes in addition to default insurance, said the people who asked not to be identified speaking about the trades. These so-called basis traders stand to profit if the company defaults, triggering payouts on insurance swaps. They also hold at least 50 million pounds, or 25%, of the unsecured bonds, enough to have a say in forthcoming debt talks, the people said.

The other group includes hedge fund Beach Point Capital Management and is advised by law firm Paul Hastings. These investors are likely to wait for better terms for the notes, the people said.

A spokesman for PizzaExpress declined to comment. Hony representatives in Hong Kong could not be reached outside of normal office hours. For David Ereira, Paul Hastings’ London-based partner, Hony’s tender offer is a “positive step, but in itself not the solution to the company’s problems.”

PizzaExpress’s unsecured bonds jumped after the announcement of the tender offer and are currently quoted at 26 pence. That’s in line with the price range at which Hony is offering to buy the debt, between 20 pence and 40 pence on the pound, according to the tender document.

A national icon for many Britons, PizzaExpress has been caught up in a broader malaise of rising costs and changing consumer habits forcing many retailers and leisure companies to close sites and seek protection from creditors. An expansion in China has also added pressure on its finances.

“The endgame has begun with Hony making a play to control the senior notes through the mechanism of a tender offer,” CreditSights analysts wrote last week. “Quite what a majority gets them is not entirely clear and we interpret it as the first step in a subsequent chain of events aimed at either refinancing or restructuring existing debt.”

The credit swaps prices signal a 68% probability of default within one year, according to ICE Data Services. There is about $200 million of credit swaps outstanding on PizzaExpress, the latest data from International Swaps & Derivatives Association show.

S&P Global Ratings cut PizzaExpress’s rating to nine levels below investment grade this week, saying a distressed exchange or debt restructuring looks inevitable within six months.

To contact the reporters on this story: Katie Linsell in London at klinsell@bloomberg.net;Luca Casiraghi in London at lcasiraghi@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Chris Vellacott

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