“NPC International, Inc., through its subsidiary NPC Quality Burgers, Inc., operates as a franchisee of Pizza Hut restaurants. The company’s restaurants offer products, such as pizza, pasta, chicken wings, salads, soft drinks, sandwiches, and beer. The company was founded in 1962 and is based in Overland Park, Kansas. NPC International, Inc. operates as a subsidiary of NPC Restaurant Holdings, LLC”. Bloomberg
BDC Credit Reporter View
6/14/2019: We’ve only recently become aware of NPC International, both because we’re still loading all 3,000+ BDC portfolio companies into our database and because the debt held by Bain Capital Specialty (BCSF) – in both first and second lien – was marked close to par through IVQ 2018, and was only added to our Watch List at the CCR 3 level in IQ 2019. Now we’ve delved a little further, there’s no doubt that the Company is in serious trouble. It’s not just the high leverage (debt to EBITDA of 7X); or the urgent need for more capital improvements or the deteriorating debt service numbers, but also the weakening position of Pizza Hut versus its competitors and in the fast mood marketplace. No wonder the owners appear to have under-funded a recent equity infusion. As a result, we’re worried about both BCSF’s loans, which total $14mn. Most exposed is the publicly traded second lien, which was marked at a (13%) discount at March 31, 2019, but is currently discounted by about 50%. Even the first lien debt must be in question. For BCSF, there’s approximately $1.2mn of investment income at risk of interruption and potential losses – should matters continue to go awry – that could result in a Realized Loss of ($8mn-$14mn). Certainly, when the IIQ 2019 results are published, expect to see a multi million dollar unrealized value drop. NPC International is now on our Worry List and seems fated to remain there – or move to non accrual – for some time.
Last week, Debtwire said that a promised cash infusion from the company’s owners, Delaware Holdings and Eldridge Investment Holdings, was smaller than expected. On Wednesday, Bloomberg noted that NPC’s debt is trading near “distressed levels” as loan investors grow nervous about the company’s future.
Bloomberg reported that Eldridge provided $9.5 million of a promised $60 million cash injection to help the company and that the remainder would be paid as needed.
Moody’s Investors Service (“Moody’s”) today downgraded NPC International, Inc.’s (“NPC”) Corporate Family Rating (CFR) to B3 from B2 and Probability of Default Rating (PDR) to B3-PD from B2-PD. Moody’s additionally downgraded the company’s 1st lien senior secured revolving credit facility and 1st lien senior secured term loan to B2 from B1, as well as the company’s 2nd lien senior secured term loan to Caa2 from Caa1. The rating outlook is negative.
‘The downgrade of the CFR to B3 reflects the persistent cost and margin pressure NPC is facing, resulting in elevated leverage levels and modest interest coverage,’ stated Adam McLaren, Moody’s Senior Analyst. For the year ended December 25, 2018, NPC’s debt to EBITDA was high near 7 times, with the expectation of remaining elevated over the next 12-18 months given the challenging operating environment with pressured same store sales and labor and margin headwinds.”