NPC International, Inc. – Court Approves Selection of Flynn Restaurant Group as Stalking Horse ($816mn Bid) for WholeCo Assets (Wendy’s and Pizza Hut); Schedules December 4th Sale Hearing

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November 14, 2020 – The Court hearing the NPC International cases issued an order approving (i) the selection of Wend American Group LLC and Hut American Group LLC (each affiliates of Flynn Restaurant Group LP, and collectively, “Flynn”) as the stalking horse bidder for the Debtors’ “WholeCo Assets” (ie the Debtors' Wendy’s assets and Pizza Hut assets combined) and (ii) bidder protections for the stalking horse [Docket No. 1051]. 

The Flynn asset purchase agreement (the "Flynn APA") which memorializes the terms of an $816.0mn cash offer, is attached to Docket No. 994 as Exhibit B.

The Debtors have built several conditions into the Flynn APA, including requirements that (i) the Franchisors consent to the agreement, (ii) Flynn deliver to the Debtors commitment letters evidencing adequate financing by November 10, 2020 and (iii) Flynn deposit $81.6mn of the proposed purchase price into escrow by November 10, 2020.

The Flynn APA further notes that Flynn has received draft commitment letters for $394.0mn in equity financing from AAG Managers LLC and Main Post Growth Capital II, L.P., MPGC II FRG Co-Investment, L.P., MP FRG Splitter, L.P. and MP FRG Co-Investment Splitter, L.P. and from Flynn Restaurant Group L.P. (collectively the "Equity Investors") and a draft commitment for $370.0mn in debt financing.

In addition, bid protections include (i) a $20.4mn break-up fee (ie 2.5%), (ii) a $1.5mn expense reimbursement and (iii) a $10.2mn (ie 1.25% of the "Base Value") franchisor consent break-up fee, to be paid in certain circumstances where Flynn has not been able to obtain franchisor consent and the Debtors' assets are otherwise sold to a thrid party.

In a November 6th press release heralding the selection of Flynn, the Debtors provide: "Flynn has agreed to acquire substantially all of NPC’s assets in a sale process under Section 363 of the U.S. Bankruptcy Code. The agreement is subject to Court approval and any higher or better offers pursuant to the bidding procedures and deadlines previously approved by the Court.

Under the terms of the APA, Flynn would acquire all of NPC’s more than 1,300 Pizza Hut and Wendy’s restaurants across the country, as well as NPC’s Shared Services assets for $816 million. Flynn has committed to offer employment to substantially all of NPC’s more than 30,000 full and part time employees."

Jon Weber, CEO & President of NPC's Pizza Hut Division, commented: “This is a significant step in our restructuring process, and we are very pleased to have reached this agreement with Flynn, which validates the strong value and long-term potential of NPC’s business. As we continue to work through the sale process and solicit bids for our assets from other interested parties in accordance with the Court approved bidding procedures, our restaurants across the country will remain open.”

Greg Flynn, Founder, Chairman and Chief Executive Officer of Flynn Restaurant Group added: “We are very excited about the possibility of acquiring NPC’s portfolio of Pizza Hut and Wendy’s restaurants, as well as its Shared Services division. These are great assets and iconic restaurant brands, and we are confident we can maximize the long-term value of the business as we continue to pursue our goal of being the premier franchise group in the restaurant industry.”

Key Terms of the Stalking Horse APA:

  • Seller: NPC Quality Burgers, Inc., a Kansas corporation, NPC International, Inc., a Kansas corporation, NPC Restaurant Holdings, LLC, a Delaware limited liability company, NPC International Holdings, LLC., a Delaware limited liability company, NPC Holdings, Inc., a Delaware corporation, NPC Restaurant Holdings I LLC, a Delaware limited liability company and NPC Restaurant Holdings II LLC, a Delaware limited liability company.
  • Purchaser: Hut American Group LLC and Wend American Group LLC
  • Purchase price: The aggregate consideration to be paid by Buyer for the sale of all of the Transferred Assets and the obligations of Seller set forth in this Agreement shall be (A) payment of an amount in cash equal to the sum of (i) $816.0mn (the “Base Value”), plus (ii) Store Cash, plus (iii) the Inventory Value; plus (iv) the Prepaids Value, plus (v) an amount equal to $8.0mn (such amount representing the agreed value of the “construction in process”), plus (vi) the Seller Proration Amount, if any, minus the aggregate amount of the credits set forth in Section 3.01(b) (such aggregate amount, the “Purchase Price”), and (B) the assumption of the Assumed Liabilities.
  • Bid protections: Break-up fee – 2.5% of base value (approximately $20.4mn); Expense Reimbursement – $1.5mn; Franchisor Consent Break-up Fee – $10.2mn

Further Background

The Debtors' motion requesting approval of the Flynn selection [Docket No. 994] notes, “The Debtors commenced these Chapter 11 Cases with a restructuring support agreement, supported by holders of a substantial portion of their priority term loan and first lien funded prepetition debt, dated as of July 1, 2020 (the ‘RSA’) providing for a dual-track restructuring strategy to maximize the value of their estates. On October 29, 2020, the Debtors amended the RSA to reflect the support of second lien lenders holding over 75% of the Debtors’ second lien debt. Accordingly, the Debtors file this Motion seeking approval of the stalking horse bidder with the support of the overwhelming majority of the holders of their funded debt. Having agreed with the Consenting Creditors (as defined in the RSA) on a consensual restructuring path and milestones for a dual-track process, the Debtors are pursuing a competitive sale process to sell substantially all of their assets (the ‘Assets’). The Assets include the Debtors’ restaurant portfolio of over 1,300 franchised restaurants across two iconic brands – Wendy’sTM and Pizza HutTM, together and related owned real property, leasehold interests, contracts, permits, inventory, intellectual property, personal property and other assets.

After consultation with the Consultation Parties, the Debtors are pursuing a stalking horse bid (the ‘Stalking Horse Bid’) submitted by Wend American Group LLC and Hut American Group LLC, which is led by Flynn Restaurant Group LP (‘Flynn’ or the ‘Stalking Horse Bidder’) for a WholeCo asset sale for a purchase price of $816,000,000 in cash (subject to certain adjustments as described under Section II ‘Material Terms of the Stalking Horse APA’ below) plus the assumption of certain liabilities (the ‘Sale Transaction’). The asset purchase agreement with the Stalking Horse Bidder is annexed hereto as Exhibit B (the ‘Stalking Horse APA’).

Bid Conditions

In connection with the approved Bid Procedures, the Debtors instituted a franchisor protocol to allow the Franchisors and potential third-party bidders to engage in discussions over the course of the sale process and agreed to delay certain transaction milestones to accommodate the Franchisors’ internal qualification procedures. As of the date of filing this Motion, the Stalking Horse Bidder remains in active discussions with the Franchisors regarding the Sale Transaction. Importantly, the Stalking Horse Bidder believes it has appropriately addressed all articulated Franchisor concerns and issues. And the Stalking Horse Bidder eagerly awaits Franchisor approval, which is necessary for the Stalking Horse Bidder to effectuate the sale and deliver a value-maximizing transaction for the benefit of all stakeholders. The Debtors and the Stalking Horse Bidder encourage the Franchisors to complete their process and provide their consent as soon as possible.

The APA specifies in respect of payment of the franchisor consent break-up fee, "in the event that: (i) (A) Seller has filed the Stalking Horse Motion, (B) the Auction occurs and (C) Seller could have terminated this Agreement pursuant to Section 11.01(k); (ii) the conditions to Closing set forth in Section 10.01(f) and Section 10.02(g) have not been irrevocably satisfied or waived; and (iii) the Agreement is terminated by Seller within thirty (30) days following the conclusion of the Auction pursuant to Section 11.01(d), Section 11.01(f) or Section 11.01(k), then, in the case of the occurrence of all three of the foregoing clauses (i), (ii) and (iii), upon the consummation by Seller of one or more Competing Bid(s), which involve, collectively, the acquisition of all or substantially all of the Transferred Assets, Seller shall pay to Buyer a break-up fee in an amount equal to 1.25% of the Base Value (the 'Franchisor Consent Break-Up Fee'); provided, however, that in the event that the aggregate cash consideration received in connection with such Competing Bids is less than an amount equal to the Purchase Price minus the Break-Up Fee (such amount, the 'Fee Threshold'), such Franchisor Consent Break-Up Fee shall not be paid."

The Stalking Horse Bidder must also, as a condition of entering into the Stalking Horse APA, deliver to the Debtors final debt and equity commitment letters by November 10, 2020 at 12:00 p.m. (Eastern Time) evidencing that they have secured adequate financing required to consummate the Sale Transaction (the 'Financing Commitment Deadline'). Further, by no later than November 10, 2020, the Stalking Horse Bidder shall provide the purchase price deposit in the sum of $81,600,000 to be held by the escrow agent in accordance with the Stalking Horse APA. Notably, if the Stalking Horse Bidder fails to deliver the debt and equity financing commitment letters by the Financing Commitment Deadline, the Stalking Horse APA will automatically terminate and Flynn shall not be entitled to the Bid Protections, as defined and described below.

The Stalking Horse APA states that Flynn has received draft commitment letters for $394.0mn in equity financing from AAG Managers LLC and Main Post Growth Capital II, L.P., MPGC II FRG Co-Investment, L.P., MP FRG Splitter, L.P. and MP FRG Co-Investment Splitter, L.P. and from Flynn Restaurant Group L.P. (collectively the "Equity Investors") and a draft commitment for $370.0mn in debt financing.

Franchisor Consent

The Flynn APA specifies that, "(i) Each of Pizza Hut LLC and The Wendy’s Company and their respective Affiliates (including Yum! and its Affiliates) party to the applicable Franchise Agreement or whose consent is otherwise required to consummate the Transactions shall have (A) consented to the transactions contemplated by this Agreement, and (B) waived any applicable rights of first refusal or purchase options if and to the extent applicable, (collectively, the 'Franchisor Consents') and (ii) the conditions in such Franchisor Consents imposed on Buyer and its Affiliates shall be reasonably acceptable to Buyer."

Marketing Process

The Stalking Horse APA is the product of extensive marketing efforts over the past several months. As detailed in the Augustine Declaration (as defined below), with the support of over 92% of their Priority First Lien Lenders, over 86% percent of their First Lien Lenders and a material portion of their Second Lien Lenders (each as defined in the RSA or Amendment No. 1 to the RSA, as applicable), the Debtors’ investment banker, Greenhill & Co., LLC (‘Greenhill’), launched a robust marketing process in early July. During the marketing process, relevant information regarding the Debtors’ business has been made available in the data room, allowing potential bidders, subject to the execution of appropriate confidentiality agreements, to conduct diligence on the Debtors’ business. The initial process was for the Debtors’ Wendy’s assets; however, the scope of the marketing process was expanded to include the Debtors’ Pizza Hut assets on August 28, 2020. As part of the Wendy’s sales process, the ad hoc group of the Priority First Lien Lenders and First Lien Lenders retained an operational consultant and quick-service restaurants advisor, The Cypress Group (‘Cypress’), to assist with identifying prospective purchasers and the potential marketing and sale process.

To date, Greenhill and Cypress have contacted 371 potential buyers for the Wendy’s assets, with more than 121 interested parties executing confidentiality agreements. The Debtors have received 75 indications of interest from 43 parties for some or all of the Wendy’s assets, many of which provided for independent bids for multiple regions. Currently, there are at least 26 active potential buyers conducting due diligence. Contemporaneously, Greenhill has contacted 263 potential buyers for the Pizza Hut assets, with more than 55 interested parties executing confidentiality agreements. The Debtors have received 17 indications of interest from 11 parties for some or all of the Pizza Hut assets, many of which provided for independent bids for multiple regions. Currently, there are at least 32 active potential buyers conducting due diligence. The Debtors have shared teasers, a confidential information memorandum, financials models and other related financial and operational information with the potential bidders. Additionally, the Debtors have conducted management presentations with a number of potential bidders."


The Stalking Horse APA includes the following sale milestones:

  • No later than November 18, 2020, the Bankruptcy Court shall have entered the Stalking Horse Order.
  • No later than January 7, 2021, the Bankruptcy Court shall have entered the Sale Order.

About the Debtors

The Debtors are the largest franchisee of any restaurant concept in the U.S., based on unit count, according to the 2019 “Top 200 Restaurant Franchisees” by the Restaurant Finance Monitor, and are the fifth largest restaurant unit operator, based on unit count, in the U.S., operating both Pizza Hut™ and Wendy’s™ locations. 

With their headquarters located in Leawood, Kansas, and a shared services center located in Pittsburg, Kansas, the Company has a total of approximately 7,500 full time employees and approximately 28,500 part-time employees, and operate in 30 states and District of Columbia. As franchisees of the Pizza Hut and Wendy’s brand, the Company’s performance is inextricably tied to the overall performance of each brand, and although the Company continually seeks to optimize its businesses as discussed more fully below, there are certain headwinds facing the broader Pizza Hut system that NPC cannot directly combat without brand support.

As of the Petition Date, the Debtors operated 1,227 Pizza Hut units in 27 states, with significant presence in the Midwest, South, and Southeast.

As of the Petition Date, the Debtors operated 393 Wendy’s restaurants in eight states and the District of Columbia.

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