Hedge Funds Eye $140 Million Payday From PizzaExpress

(Bloomberg) — The rescue of troubled U.K. restaurant chain PizzaExpress is bringing a windfall to some.


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Hedge funds that bought credit insurance are receiving a payout Thursday from an auction to settle credit-default swaps. The initial auction set the value of the payout just shy of 100%, amounting to compensation of $142 million.

A panel representing CDS traders ruled last month that PizzaExpress contracts will pay after the company missed interest payments on its debt.

PizzaExpress is cutting rents and closing 73 of the chain’s U.K. restaurants, putting 1,100 jobs at risk. Bondholders are likely to take ownership of the majority of the business while the chain’s private-equity owner, Hony, will keep the Chinese operations.

Read more: PizzaExpress Creditors Approve Closures, 1,100 Jobs at Risk

Credit swaps are commonly used by hedge funds and investment firms to bet on companies running into trouble and to hedge exposure. A spokesman for PizzaExpress declined to comment on the CDS auction.

chart: Price of PizzaExpress credit protection has risen over time

© Bloomberg
Price of PizzaExpress credit protection has risen over time

PizzaExpress’s blue-fronted restaurants are a familiar sight in Britain’s town centers. But its business has come under strain from shifting consumer habits pressuring the retail and leisure sectors. The company was already struggling under its debt before the coronavirus pandemic forced it to close restaurants in March.

PizzaExpress’s credit swaps reference the company’s senior unsecured notes which are currently quoted at less than 5 pence on the pound, according to data compiled by Bloomberg.

(Updates with final auction level in headline and second paragraph.)

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