S&P lowers PizzaExpress

S&P said it lowered its long-term issuer credit rating on PizzaExpress Financing 1 plc to CCC+ from B-. The outlook is stable.

At the same time, S&P lowered to CCC+ from B- its issue rating on the £465 million 6 5/8% senior secured notes due August 2021 issued by PizzaExpress Financing 2 plc. The recovery rating remains at 3, indicating expectations of average recovery in the event of default (50%-70%; rounded estimate: 60%).

S&P said it also lowered to CCC- from CCC the issue rating on the £200 million 8 5/8% senior unsecured notes due August 2022, issued by PizzaExpress Financing 1 plc. The recovery rating remains at 6, indicating expectations of negligible recovery in the event of default (0%-10%; rounded estimate: 0%).

At the same time, the agency downgraded to B+ from BB- its issue rating on the group's £20 million super senior revolving credit facilities. The recovery rating remains at 1+, indicating expectations of full recovery in the event of default.

“The downgrade reflects: PizzaExpress' continued earnings decline amid brisk cost headwinds and intense competition, with a 16% drop in EBITDA to £35 million in the first half of 2018; limited earnings growth prospects in the overcrowded restaurant segment in the U.K....; and high debt level – we forecast that reported debt to EBITDA could reach 7.6x-8.0x in 2018 and remain at the same level in 2019,” S&P said in a news release.

“Therefore, we consider that PizzaExpress' weakening earnings base is no longer sustainable for servicing its high debt levels in the long term.”

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