NPC International: Files Chapter 11

As had been signalled by the media a day before NPC International filed for Chapter 11 on July 1, 2020. The fast food franchisee is armed with a Restructuring Support Agreement (“RSA”) agreed with most of its creditors and the goal of substantially reducing its debt load. The company hopes to come through the bankruptcy process with a new balance sheet and stronger prospects.

This is a major bankruptcy in terms of size in the fast food sector but relatively minor from a BDC perspective. Only $14.5mn is invested at cost in NPC by one BDC: Bain Capital Specialty Finance (BCSF). The BDC is both a first lien and second lien lender, according to Advantage Data records. We get the impression the $9.2mn in second lien debt will be written off. BCSF has already written down that debt by almost (100%) as of March 31, 2020. The first lien debt may get fully or partly converted to equity and the BDC might be asked to contribute to DIP or post-bankruptcy financing. The amounts, though, should not be material for such a huge BDC. Even at the end of the first quarter the debt was already on non accrual (and had been since the IVQ 2019) and the FMV was only $2.7mn.

What’s notable is that NPC International – which we’ve written about multiple times before – is the first BDC-financed company bankruptcy of July and yet another setback in the restaurant sector. This is a First Wave credit: a company already in deep trouble (non performing) months before Covid-19 delivered the coup de grace. Nor is there any guarantee that the company will not be back here in Chapter 11 (or Chapter 7) in the near future as industry conditions continue to be difficult and constantly changing.