Pizza Hut's largest U.S. franchisee files for Chapter 11 bankruptcy
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A customer enters a Pizza Hut restaurant in Princeton, Illinois.

Daniel Acker | Bloomberg | Getty Images

NPC International, the largest U.S. franchisee of Yum Brands' Pizza Hut, filed for Chapter 11 bankruptcy on Wednesday.

The company operates more than 1,200 Pizza Huts and nearly 400 Wendy's restaurants.

In contrast to most of the restaurant industry, Pizza Hut is one of the rare companies to report same-store sales growth in April and May, thanks to higher digital and delivery sales. But the coronavirus pandemic follows years of slumping U.S. sales for Pizza Hut, and NPC has struggled with a debt burden of roughly $1 billion.

Seeking Chapter 11 protection means that NPC can continue to operate while it tries to turn business around. Pizza Hut said in a statement that NPC's locations of the pizza chain continue to serve food. The franchisee pre-negotiated a restructuring agreement with most of its lenders.

"While NPC's Chapter 11 filing was expected, we view it as an opportunity to create a better future for NPC's Pizza Hut restaurants," a Pizza Hut spokesperson said in a statement. "As NPC works through this process, we support an outcome resulting in an organization with a lower, more sustainable level of debt, ownership focus on operational excellence and a greater level of restaurant investment."

In 2019, NPC saw its debt slide further and further into junk territory after credit downgrades from S&P Global Ratings and Moody's. Both ratings agencies downgraded the franchisee's debt in February after it did not make interest payments due to lenders on Jan. 31.

In a note published Tuesday before the bankruptcy filing, Cowen analyst Andrew Charles estimated that Yum could lose up to $54.2 million of annualized royalty revenue and 13 cents of annualized earnings per share if NPC stops paying royalty fees. Pizza Hut and Wendy's are NPC's largest creditors, according to its bankruptcy filing.

NPC opened its first Pizza Hut location in 1962 and went public in 1984. The franchisee went private again in 2001 and was owned by a series of private equity firms before being sold in 2018 to two family offices, Delaware Holdings and Eldridge Investment Holdings.

NPC joins a host of other companies that have filed for bankruptcy during the pandemic, including Chuck E. Cheese's parent company CEC Entertainment, rental car company Hertz, and retailers J. Crew and J.C. Penney.