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Law360 (July 1, 2020, 11:22 AM EDT) -- The largest franchisee of Wendy's and Pizza Hut restaurants in the U.S. filed for Chapter 11 protection Wednesday in a Texas bankruptcy court with more than $1 billion in debt, citing the economic uncertainties around the COVID-19 pandemic.
NPC International Inc. said it expects to keep its Pizza Hut and Wendy's restaurants open and operational during the restructuring process. The company filed its petition in the Southern District of Texas alongside seven affiliates. NPC is one of the largest restaurant franchisees in the U.S. by number of business units, and is the largest franchisee in both the Wendy's and Pizza Hut systems, according to the filings.
The company cited changing dining preferences, higher labor costs and a heavy debt load as well as the cost and economic uncertainties associated with the pandemic.
"As our industry has been in the midst of dynamic changes due to shifting consumer preferences and dining behavior, we also have been facing increased labor and commodities costs and a higher level of financial leverage that presents obstacles to achieving our long-term business objectives," Jon Weber, CEO of the company's Pizza Hut division, said in a statement. "These challenges have been magnified recently by the impact and uncertainty of COVID-19, and we believe it is necessary to take proactive steps to strengthen our capital structure."
While NPC's Pizza Hut division saw a brief spike in sales during the pandemic because of the popularity of food delivery, its Wendy's business suffered because of the decline in foot traffic and a less-developed delivery system, the filings said. NPC said that those trends are unlikely to last, and that its Pizza Hut business will likely continue to struggle even as its Wendy's arm performs relatively well.
The pandemic has also come with significant operational costs: NPC said it has spent an average of $750,000 per month on supplies such as masks, gloves and Plexiglass shields around cashier counters, and that it expects those costs to continue through the end of the year.
The company has reached a restructuring support agreement with more than 90% of its first lien priority lenders and a large majority of first lien debt holders, according to an accompanying announcement.
Some of its largest unsecured creditors include Pizza Hut Inc. and The Wendy's Co., as well as Sysco USA I Inc., according to the court filings. NPC said it does expect to have funds available for its unsecured creditors.
NPC joins a number of restaurant-related businesses to file for bankruptcy in recent months. Chuck E. Cheese filed for Chapter 11 protection in late June; Maines Paper & Food Service Inc., a food distributor that counts Burger King, Longhorn Steakhouse and Olive Garden among its clients, filed a bankruptcy petition June 10; and bakery chain Le Pain Quotidien sought Chapter 11 protection in late May with more than $100 million in debt.
Representatives for NPC could not immediately be reached for comment on Wednesday.
NPC is represented by Ray C. Schrock, Kevin Bostel, Natasha Hwangpo and Alfredo R. Pérez of Weil Gotshal & Manges LLP.
The case is In re: NPC International Inc., case number 20-33353 in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division.
--Additional reporting by Vince Sullivan, Jeff Montgomery and Bill Wichert. Editing by Rebecca Flanagan.
Update: This story has been updated with additional information from the filings and with counsel information.
For a reprint of this article, please contact reprints@law360.com.
