Categories: Investments

Largest U.S. Pizza Hut Franchisee Could Choose Bankruptcy

The largest franchisee of U.S. pizza chain Pizza Hut is reportedly considering options in the wake of financial woes, including bankruptcy.

The news, reported by Bloomberg on Wednesday (Feb. 19), said that NPC International, which owns around 1,200 Pizza Huts, is about $1 billion in debt.

In lieu of that, the franchisee has begun negotiations with lenders. The company wants to keep restructuring efforts out of court but could end up filing for bankruptcy with a prenegotiated plan in place.

NPC International saw its debt mount more and more in 2019, going into junk territory amid credit ratings from S&P Global Ratings and Moody's. Both rating agencies further downgraded the franchisee's ratings after it did not make interest payments to lenders by Jan. 31.

Pizza Hut, owned by Yum Brands, has been struggling for the same reason as other long-standing food institutions in America — people want their food delivered, and high costs in food and labor have decayed the chain's profits in the last few years, while delivery gig-economy apps have taken precedence.

Same-store sales fell by 2 percent during the pizza chain's fourth quarter.

Yum Brands' shares were down 1 percent on Thursday. The company's value sits at $31.3 billion. Rival Domino's Pizza, which only boasts a value of $15.1 billion, were surging 24 percent after the news of the company's fourth-quarter earnings that topped estimates.

Yum Chief Financial Officer Chris Turner said there was "potential for choppiness" in near-term results for Pizza Hut, according to CNBC.

Yum Brands also owns fast-food chains Taco Bell and Kentucky Fried Chicken. Earlier this year, the company announced plans to purchase Habit Restaurants, the casual fast-food chain. The deal is reportedly that Yum will buy Habit out at around $14 a share, coming out to a total of $375 million. Shares of Habit were going for about $11 in early January.

The idea of purchasing Habit is that the brand is one that can be expanded internationally.

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