Telepizza bonds plummeted in value on Monday after the Spanish pizza delivery company said it needs more cash, just over a year after its buyout by KKR.
The company, which has already fully drawn its revolving credit facility, said on Friday that it may require up to €95m-€115m before debt servicing to "maintain adequate liquidity".
Telepizza's €335m 6.25% May 2026s were seen at 51 bid, down from 82 at the end of last week.
The company also said that it is in discussions with Spanish commercial banks to obtain state-guaranteed financing of up to €20m.
"Telepizza is currently revisiting its business plan and requires additional capital to execute an operational turnaround and arrive at a more sustainable capital structure," the company said in its first quarter results presentation, published on Friday.
"We are exploring all available options to improve our liquidity and look to secure support from shareholders and bondholders," it said.
The company said that it has hired Kirkland & Ellis and Houlihan Lokey to evaluate the options available.
These developments together herald a potential debt restructuring, said Lucror Analytics analysts.
"The restructuring could lead to a moratorium on interest payments until the operations have gotten back on their feet, and not necessarily a full-fledged restructuring for now," said the analysts.
"The group is clearly burning cash, and unless steps are taken, this could lead to a meaningful loss of value for bondholders."
The request for extra liquidity comes just over a year after Telepizza raised the senior secured 6.25% May 2026s, proceeds from which were used to fund KKR's takeover of the company.
As part of the recapitalization of Telepizza, KKR paid itself a €130m extraordinary dividend last June, according to an earnings report.
Telepizza was bought out after undertaking a franchise alliance with Pizza Hut that was meant to double its store portfolio and allow for further synergies as the business expanded.
CreditSights analysts said that the coronavirus epidemic has simply accelerated the decline of Telepizza's unstable capital structure, noting the company's aggressive acquisition strategy.
The company on Friday reported an 80% drop in adjusted Ebitda in the first quarter of 2020.
"Our conclusion is that, excluding Covid-19, Telepizza's LatAm acquisitions and Spanish PizzaHut stores were the main culprits for the deterioration in Ebitda with structural and economic weaknesses that pre-dated Covid-19," wrote CreditSights analysts.
"Despite its efforts to preserve liquidity, the company has experienced a profound cash burn in May."
Telepizza's next coupon payment is €10.5m, which is due on July 15, according to Refinitiv data.
Telepizza finally held its quarterly earnings call after pushing back from its originally scheduled date of April 2.
When the company finally released the results, instead of holding a call with a Q&A section for investors, management released a pre-recorded voice-over that was less than 20 minutes, said CreditSights analysts. Telepizza did not immediately respond to a request for comment.
European high-yield investors have been struggling to get issuers to be fully transparent over the state of their finances.
Swiss vending machine operator Selecta, also owned by KKR, saw its bonds drop by up to 20 points at the end of April after the company said it would not be hosting a quarterly conference call with bondholders.
Lack of transparency is especially worrying for secured bondholders of credits like Selecta and Telepizza, because such companies are looking to access new capital, which could lead to those investors being diluted or layered, said a high-yield investor.
Selecta is now looking for new funds which may come in the form of €150-200m in new loans granted by KKR to the company, sources told Reuters on Friday.
"The silence is incredible across the board," said the investor.
"Every time you see that a company needs new money and provides no other information, investors have to be that much more wary, especially given this erosion of covenants in recent years," he said.
Secured bondholders could find out that loose covenants could potentially allow the company's most valuable assets to be moved out of the security package of the existing bonds, added the investor. KKR did not immediately return a request for comment.