Industry News

Boston Pizza International Inc. Announces Plans for Internal Reorganization

Boston Pizza Royalties Income Fund and Boston Pizza International Inc. (BPI) have plans for the orderly succession of ownership at BPI, Canada’s largest franchisor of casual dining restaurants. Walter James Treliving and George C. Melville, business partners for over 46 years and BPI’s chairmen and owners, are planning an internal reorganization of their jointly owned assets such that Mr. Treliving will acquire 100-per-cent economic interest in BPI, while Mr. Melville will become the single largest individual owner of trust units of the fund.

“Having been involved with the Boston Pizza brand for almost 50 years, I am thrilled to continue my commitment to this business by acquiring all the outstanding shares of Boston Pizza International Inc. Success is not achieved alone, and I want to thank George for his unwavering commitment to our partnership, BPI and the fund,” said Mr. Treliving. “I see incredible potential for the continued growth of Boston Pizza, and together with our strong leadership team and committed franchisees, I am confident about our plans to lead Boston Pizza into the future.”

Mr. Melville added: “I am very proud of the success that Jim and I have had as partners, and it has been a real honour to work with the many talented people and great franchisees of Boston Pizza. I am happy that we have plans for a restructuring, and I am confident that Jim and his team will continue the success. I want to thank my family for all the years of support, and I am extremely excited about the future.”

The reorganization will involve BPI obtaining new senior credit facilities in the amount of $50-million from Bank of Montreal, corporate finance division, and increasing its leverage by drawing down $40-million on these facilities. This increased level of indebtedness of BPI requires certain consents from the fund, including the relaxation of certain debt restrictions contained in the general security agreements (or GSAs) that secure the fund’s interest in future royalty payments from BPI. The covenants negotiated in the amended GSAs will be more stringent than those in the new credit facilities obtained to finance the reorganization, and will result in the return to pre-existing levels by 2021. At the same time, the fund and BPI will agree to a number of changes that favour the fund immediately and on a permanent basis, including improved security arrangements, undertakings that will allow the trustees of the fund enhanced flexibility in their decision making with respect to distribution policy, and indemnification related to the reorganization.

“The trustees of the fund are very pleased with the plans to effect this orderly transition of ownership,” said William C. Brown, chairman of the trustees of the fund. “This clear, decisive reorganization means that BPI will remain a very strong franchisor with a long-term vision and interests that continue to be directly aligned with those of the fund.”

Boston Pizza franchisees will be unaffected by the reorganization, and the economic terms of the relationship between the fund and BPI will not change. The reorganization will involve a series of transactions and steps, and it is expected to be completed in the next couple of weeks.

Highlights of the proposed reorganization:

  • BPI will exchange 1,910,597 of its exchangeable Class B general partner units of Boston Pizza Royalties Limited Partnership (BPRLP) and 40,815,839 of its exchangeable Class 2 general partnership units of Boston Pizza Canada Limited Partnership (BPCLP) for 1.6 million units, which Mr. Melville will indirectly acquire.
  • BPI will exchange all of its 2.4 million Class C general partner units of BPRLP for the assumption by Boston Pizza Holdings Limited Partnership of the $24-million loan owing by BPI to the fund. Subsequently, the fund and its subsidiaries will effectively capitalize and eliminate this loan.
  • Following the exchange, BPI will transfer its remaining Class B units and Class 2 units to a new general partnership wholly owned (directly and indirectly) by BPI. Following the reorganization, the BP partnership will have the right to acquire 2,487,719 units, representing 10.2 per cent of the outstanding units on a fully diluted basis.
  • The new credit facilities will be composed of a $40-million term loan and a $10-million revolving operating facility, which will replace BPI’s existing $7.5-million revolving operating facility from the same bank. The new credit facilities will have a term of five years and will bear interest at fixed or variable rates, as selected by BPI, composed of either or a combination of bankers acceptance rates plus between 1.0 per cent and 2.5 per cent, depending upon debt to EBITDA (earnings before interest, taxes, depreciation and amortization) ratios. The term loan will be amortized over 15 years and require quarterly payments of principal and interest. The new credit facilities will be guaranteed by some of BPI’s subsidiaries and secured by assets owned by BPI and the guarantors, and will have customary covenants usual for these types of credit facilities. The term loan will be fully advanced as part of the reorganization and will be paid to an entity owned and controlled by Mr. Melville as partial consideration for him disposing of his interest in BPI.
  • Following the reorganization, Mr. Treliving will be the sole owner of BPI. Mr. Melville will resign as a director and officer of BPI and will no longer be a joint actor of BPI.

About Boston Pizza Royalties Income Fund

The fund is a limited-purpose open-ended trust with an excellent record for investors since its initial public offering in 2002. Including the July, 2017, distribution, which was paid on Aug. 31, 2017, the fund has delivered 18 distribution increases and 181 consecutive monthly distributions to unitholders totalling $264.2-million or $18.69 per unit since 2002. The fund earns revenue based on the franchise system sales of the 383 Boston Pizza restaurants included in the fund’s royalty pool.