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A Wendy's restaurant

Pizza Hut and Wendy’s franchisee NPC International Inc. files for Chapter 11 bankruptcy protection

The company was struggling before the coronavirus pandemic

NPC International Inc., which operates more than 1,600 restaurant franchises, filed for Chapter 11 bankruptcy protection Wednesday.

The Leawood, Kan.-based franchisee of Wendy’s and Pizza Hut restaurants said it had reached an agreement with its priority debt holders to  “substantially reduce [its] long-term debt and strengthen the Company’s capital structure.”

That agreement included NPC and some related companies filing for bankruptcy protection, which they did in the U.S. Bankruptcy Court for the Southern District of Texas.

NPC said it would use the bankruptcy protection to “engage in further discussions with its brand partners, landlords and other creditors” to firm up its financial position.

There already were signs that NPC, which as of the end of fiscal 2019 operated 1,229 Pizza Hut restaurants and 393 Wendy’s, was in financial difficulty.

The Wall Street Journal on Monday reported that the company had missed interest payments on $800 million in loans on Jan. 31, even before the novel coronavirus pandemic reached the United States, prompting credit rating agencies S&P Global Ratings and Moody’s Investor Service to lower their ratings of NPC’s debt.

The chains that NPC operates are actually doing fairly well, particularly Pizza Hut which, like many pizza delivery chains, has seen sales rise during the pandemic as consumers have increased their takeout and delivery orders during the crisis.  

Wendy’s sales have suffered more, compounded by beef supply issues, but the parent company said same-store sales returned to year-over-year growth in the last week of May.

However NPC officials said the pandemic exacerbated the company’s existing difficulties.

“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, president and CEO of NPC’s Pizza Hut division, said in a release announcing the bankruptcy. “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, so we have the financial flexibility to continue to adapt to current industry trends. We also intend to use this process to continue to evaluate and optimize our restaurant portfolio so that we are best positioned to meet the needs of consumers across the country.”

The company said it would continue to operate its restaurants during the bankruptcy process, and had filed motions with the bankruptcy court that would allow it to use its available cash to continue to pay and provide benefits to its employees, and that also would allow it to pay vendors for goods and services going forward.  

Carl Hauch, president and CEO of NPC’s Wendy’s division, expressed confidence in NPC’s recovery.

“The Wendy’s business remains strong and resilient and is already recovering from the impact of the pandemic to produce year-over-year growth,” he said in the release. “We look forward to continuing our discussions with our brand partners, landlords and other creditor groups and are confident that we will be able to work collaboratively to agree on a long-term plan that is in the best interests of all stakeholders.”

A spokesperson for Pizza Hut, a subsidiary of Yum! Brands, confirmed that the parent company was working with NPC to resolve its debt problems.

"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," the spokesperson said. "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. 

"These changes will help NPC’s Pizza Hut restaurants generate the same momentum we are seeing throughout the Pizza Hut U.S. business and strengthen the overall health and performance of the entire system for the long term. ... We know the capital commitment, capabilities, and operational focus required for Pizza Hut franchisees to compete in a fast-changing environment. We are working with NPC and its lenders to ensure that NPC’s Pizza Hut restaurants emerge from this process with the support they need to succeed."


Contact Bret Thorn at [email protected] 

Follow him on Twitter: @foodwriterdiary

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