November 17, 2020 – The Court hearing the NPC International cases has extended the periods during which the Debtors have an exclusive right to file a Plan and solicit acceptances thereof, through and including February 26, 2021 and April 27, 2021, respectively [Docket No. 1065]. Absent the relief, the Plan filing and solicitation periods were scheduled to expire on October 29, 2020 and December 28, 2020, respectively.

The Debtors appear to be nearing the conclusion of a particularly complex asset sale process, with the Debtors' soliciting bids for each of their Wendy's and Pizza Hut assets individually, or alternatively, on a combined whole company basis; with those efforts having recently resulted in the Court-approved designation of Flynn Restaurant Group, LP affiliates (collectively, "Flynn") as the stalking horse bidder for the Debtors' "WholeCo Assets." 

The Flynn APA includes a milestone of January 7, 2021, for the entry of a sale order, after which the sale would have to close and a Chapter 11 Plan reflecting that sale agreed. Amongst many workstreams relating to the sale of one of the nation's largest franchisees of restaurants (more than 1,600 restaurants as at the Petition date) to another equally large player, is the receipt of approvals from the Debtors' franchisors. The Pizza Hut franchisor is an affiliate of Yum! Brands (the product of a 1997 spin-off of PepsiCo's KFC, Pizza Hut and Taco Bell restaurant groups) and the Wendy's franchisor is Quality Is Our Recipe, LLC, an affiliate of The Wendy's Company. The Debtors' relationship with the Pizza Hut franchisor had been fraught for a number of years, with both groups now insisting that the relationship has recently improved, nonetheless Flynn was concerned enough about the transition that it insisted on a "franchisor break-up fee" of 1.25% (in addition to a more standard 2.5% break-up fee) should it be unable to obtain approvals from the franchisors.

The Debtors' extension motion [Docket No. 817], filed two weeks before the the Flynn transaction was announced states, “In the mere three months since the Petition Date, the Debtors have made meaningful strides toward achieving their objectives of administering these chapter 11 cases with deliberate expediency and care, including reaching momentous settlements, making substantial progress in right-sizing their restaurant footprint, launching a multi-part sale process and filing the Plan and Disclosure Statement….

These chapter 11 cases have been highly consensual to date, and the Debtors continue to work productively with key stakeholders as they move toward emergence. Notably, on August 13, 2020, the Debtors and the Pizza Hut Franchisor entered into an unprecedented restaurant closure settlement agreement (the ‘PH Settlement Agreement’), which was a culmination of extensive, multi-month negotiations between the Debtors and the Pizza Hut Franchisor and allows the Debtors to close up to 300 unprofitable Pizza Hut locations during the pendency of these chapter 11 cases. This Court approved the PH Settlement Agreement on August 28, 2020 [Docket No. 526], providing the Debtors with the flexibility to optimize their Pizza Hut restaurant portfolio, which is critical toward achieving a value maximizing outcome in these chapter 11 cases — whether the Debtors ultimately consummate a Sale Transaction or a Reorganization Transaction.

In furtherance of the multifaceted Sale Processes, the Debtors, the management team, and advisors have already provided and continue to provide significant diligence to Potential Bidders (as defined in the Bidding Procedures), have participated in numerous calls and meetings with Potential Bidders and the Franchisors (as defined in the Bidding Procedures) and have exchanged drafts of purchase agreements.

The Debtors have clearly made significant progress in these chapter 11 cases and specifically toward confirmation of the Plan and seek — largely as a precautionary measure — an additional 120-day extension of the Exclusive Periods to permit the Debtors to complete the Sale Processes, solicit votes on the Plan, make any necessary modifications to the Plan and confirm the Plan without the interruption of a competing plan. Importantly, this is the Debtors’ first request to extend the Exclusive Periods in these chapter 11 cases.”

In relation to the sale process, the Court has 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” (i.e., the Debtors’ Wendy’s assets and Pizza Hut assets combined) and (ii) bidder protections for the stalking horse [Docket No. 1051]. That sale hearing is scheduled for December 4, 2020.

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 operate 1,227 Pizza Hut units in 27 states, with significant presence in the Midwest, South, and Southeast.

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

Read more Bankruptcy News