September 18, 2014 / 8:31 AM / 3 years ago

Phones 4U bondholders propose restructuring plan

* Bondholders offer write-down of retailer's debt

* Administrators urge speedy resolution

* Restructuring plan dependent on operators' support

By Robert Smith

LONDON, Sept 18 (IFR) - A group of Phones 4U's senior secured bondholders are proposing to restructure the UK retailer, agreeing to wipe out a significant chunk of their debt to save the business.

Phones 4U went into administration earlier this week, after the country's biggest mobile operator EE joined Vodafone in not renewing its network agreement.

Its debt chiefly comprises a £430m 9.5% 2018 senior secured bond placed in 2011 when BC Partners acquired the business, and a £205m 10% 2019 payment-in-kind (PIK) note sold in September 2013 to fund a dividend to its owners.

US law firm Brown Rudnick is representing a group of the senior secured bondholders, and has already began discussions with the company's administrators at PWC.

"We have proposed a restructure of the business that means the capital structure will no longer be an impediment to achieving the commercial outcome which allows the company to continue as a going concern," said Louise Verrill, a partner at Brown Rudnick.

"The bondholders would take a significant write-down on their debt which would make the business commercially viable and lay foundations for the 5,596 jobs to be saved."

On a call with bondholders on Tuesday evening, the administrators said they were open to restructuring proposals from creditors, but were anxious to have those discussions sooner rather than later, as the likelihood of being able to restart the business diminishes the longer it is closed.

The administrators also added that they would need a "private forum of creditors where we can discuss strategy," noting that many bondholders had refrained from learning private information as it would restrict their ability to trade the bonds.

The senior secured notes were bid between 22 and 23 this morning, according to Tradeweb. The deeply subordinated PIK notes, meanwhile, are now virtually worthless, bid between 1 and 2.

The administrators are holding a second update call with senior secured bondholders on Thursday afternoon.

LITTLE COMMERCIAL FLEXIBILITY

Phones 4U's rapid slide into administration began at the start of September, when operator Vodafone decided to not renew its network agreement with the retailer.

The company was already under pressure as O2 had pulled its service at the start of the year and its principal rival Carphone Warehouse then agreed a merger with Dixons. The latter was a particular blow as Phones 4U had a partnership with the electronics retailer allowing it to operate store-in-stores in more than 150 outlets.

When EE, which comprises T-Mobile and Orange, decided that it would also not renew its contract, Phones 4U's owners were forced to enter administration at the start of this week.

"If the mobile network operators decline to supply us, we do not have a business," said Phones 4U chief executive David Kassler.

Any restructuring plan would need to regain the support of the major mobile operators in order for the business to survive.

"Our bondholder group has been working hard to ensure that the company's cost structure can be adjusted to meet the commercial terms that EE and Vodafone put to the previous owners," said Verrill at Brown Rudnick.

Vodafone hit out at Phones 4U's management in a statement earlier this week, arguing that they were unable to agree a commercially viable agreement due to the constraints of their capital structure.

"We were told by the Phones4U management team that they had little commercial flexibility due to their debt repayment obligations," Vodafone said in the statement. (Reporting by Robert Smith, editing by Alex Chambers, Julian Baker)

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