Pizza Hut Franchisee NPC International Files Bankruptcy
In the past few months, many large businesses that no one would have previously expected to file bankruptcy were forced to do so due to the coronavirus pandemic. Many of these have been clothing retailers, like JC Penney and Neiman Marcus, or fitness brands, like 24 Hour Fitness and Gold’s Gym. Some restaurant chains that were already struggling and are too difficult to operate under new COVID-19 guidelines have shut down for good, like Chuck E. Cheese and Sweet Tomatoes. A new business has joined the list of companies filing Chapter 11 bankruptcy in the wake of the coronavirus pandemic, but may come as more of a surprise.
NPC International owns more than 1,200 Pizza Hut franchise locations and 400 Wendy’s franchise locations. These locations are in 27 different states, and almost 40,000 people work at them. Despite most states restricting restaurants to take out, drive through, and delivery- Wendy’s and Pizza Hut’s specialties- for the past few months, the company filed for Chapter 11 bankruptcy protection on July 1, 2020.
What is Chapter 11 Bankruptcy?
When a company files Chapter 11 bankruptcy, its top creditors will form a panel. This panel will have to approve debt restructuring plans, and many business decisions, such as entering or renewing a lease, selling assets, or taking out new loans. Other than that, the business can continue operating. NPC hasn’t reported which of its locations will be closing as a part of the bankruptcy plan. It is important to note that NPC owns franchise locations of Pizza Hut and Wendy’s, but doesn’t own those actual companies.
Chapter 11 Bankruptcy is most often used by large companies with vast and varied debts and assets. Individuals may file a personal Chapter 11 bankruptcy, but it is extremely rare. Most individual filers choose between Chapter 7 and Chapter 13, which operate far differently from Chapter 11. In Chapter 7 bankruptcy, debts are liquidated and discharged for filers who meet certain income requirements. Chapter 13 reorganizes the filer’s debts into a 3-5 year repayment plan. Businesses sometimes also file Chapter 7, if they meet their jurisdiction’s income requirements. The business will be required to shut down permanently and surrender any remaining assets.
NPC’s Plan for Bankruptcy
Unlike many businesses that have been all but decimated by the pandemic, Pizza Hut has actually seen increased sales and decreased costs due to the spread of coronavirus. However, NPC had been struggling with too much debt leading up to the pandemic to avoid filing for bankruptcy.
The company last saw a great year in 2016, with $90 million in earnings. Profits have steeply declined in the years since then. In 2019, the Pizza Hut locations only had about $31 million in earnings. This year, the company’s Pizza Hut locations were only projected to make about $5 million. The pandemic swiftly turned that around, and NPC’s Pizza Hut locations are projected to make about $44 million this year. Even with such a dramatic turnaround, the company had amassed such high debts that it still needed bankruptcy to restructure them. NPC’s Wendy’s locations actually saw a less dramatic decrease this year- from $55 million last year to $48 million this year.
With sales lacking in the past few years, NPC had more than $900 million in debt at the start of this year, and missed its first payment in January. Much of this debt came from remodeling locations to shift focus away from dine in, which has been declining in popularity, as opposed to delivery. To reduce this debt, NPC is likely to sell and close some of its underperforming locations. NPC had already been in restructuring negotiations with its creditors before the filing, so the bankruptcy is expected to go smoothly.
What does this mean for Pizza Hut?
There are 7,496 United States Pizza Hut locations and 18,703 locations worldwide. NPC owns one out of six United States Pizza Hut locations, and one out of sixteen Wendy’s locations. Pizza Hut is owned by the company Yum Brands. If NPC doesn’t survive the bankruptcy, Yum Brands could lose more than $54 million per year in royalties. Yum Brands’ stock value could also decrease, but NPC is optimistic that it will be able to turn business around during the bankruptcy.
Contact our Mesa Bankruptcy Team for assistance with Chapter 7, Chapter 11, or Chapter 13 bankruptcy in Arizona.
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