Phones 4u Bonds Plummet After Losing Mobile Contracts

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Phones 4u Ltd. bonds lost almost all their value as the closely held company sought protection from creditors and said it would close its stores after EE Ltd. and Vodafone (VOD) Group Plc ended contracts.

Phones 4u’s 430 million pounds ($699 million) of bonds sold in March 2011 plunged 23 pence to 13.5 pence at 10:50 a.m. in London, according to data compiled by Bloomberg. The 9.5 percent bonds, which were quoted at 102 pence on Aug. 29, dropped 40 pence on Sept. 1 after Vodafone said it wouldn’t renew its agreement. EE told Phones 4u it doesn’t plan to sign a new contract with it on Friday, the retailer said yesterday.

Phones 4u, which has 5,596 employees and 550 standalone stores and is owned by BC Partners Holdings Ltd., is under threat as carriers streamline their retail strategies, using fewer outside stores and building more of their own outlets. Vodafone and EE, whose current contracts end next year, make up 90 percent of the plans Phones 4u sells.

“If the mobile network operators decline to supply us, we do not have a business,” Phones 4u Chief Executive Officer David Kassler said in the statement. “Today is a very sad day for our customers and staff.”

The Newcastle-Under-Lyme, England-based retailer has 635 million pounds of debt as well as a 125 million pound revolving credit facility, according to data compiled by Bloomberg. BC Partners said it was surprised by how suddenly the carriers had decided not to renew the contracts.

Phones 4u has asked PriceWaterhouseCoopers LLP to act as its administrator and expects the appointment to happen later today, the company said. Administration is formal protection from creditors similar to U.S. bankruptcy.

Damaged Partner

“Vodafone has acted in exactly the opposite way to what they had consistently indicated to the management of Phones 4u over more than six months,” Stefano Curzio, a spokesman for London-based BC Partners said in the statement yesterday. “Their behavior appears to have been designed to inflict the maximum damage to their partner of 15 years.”

Vodafone’s contract ends in February. Vodafone spokesman Ben Padovan had no immediate comment.

EE’s decision last week not to renew the contract, which ends Sept. 30, 2015 was also “surprising” and “leaves the board with no alternative but to seek the administrator’s protection in the interests of all its stakeholders,” Curzio said.

Vodafone announced in April it would open 150 of its own shops in the next 12 months. The mobile carriers will continue to provide mobile services to customers who already bought contracts through the chain.

EE has been working to cut the number of outside stores it works with and to focus growth on “direct channels,” the company said in a separate statement confirming it had decided not to renew the contract.

Dividend Payment

The company’s debt also includes 205 million pounds of 10 percent payment-in-kind notes due April 2019 and a 125 million-pound revolving credit facility maturing in March 2017, according to data compiled by Bloomberg. The PIK notes, which give the borrower the option of paying interest with more debt and were sold last year to pay shareholders a dividend, fell 8.3 pence to a low of 0.67 pence.

Phones 4u was founded in 1987 by U.K. businessman John Caudwell, who got into the business after selling a box of 1,350-pound mobile phones. When Caudwell sold the business in 2006, he said he was selling 26 phones a minute, according to his website.

The company is known for its off-beat ads, including a controversial campaign featuring Jesus calling its phone deals “miraculous.” The ad was banned by the advertising authority for being offensive.

Source: Bloomberg