Phones 4U bonds hold up despite dwindling sales prospects

By Robert Smith

LONDON, Sept 24 (IFR) - Phones 4U's bonds held steady on Wednesday morning, brushing off a caution from the company's administrators on the ebbing chances of future store sales.

The company's £430m 9.5% 2018 senior secured notes traded up earlier this week after it emerged that mobile operators EE and Vodafone had agreed to buy some of its stores out of administration.

"After killing it, they're picking over the carcass for the good bits," said one high-yield investor.

The cash price bid on the bonds shot up more than seven points to 37.75 following the news, as it improved the prospects for bondholder recoveries.

The company's administrators at PwC held a third call with bondholders on Tuesday afternoon. Paul Copley at PwC said that they are still talking to many interested parties about buying further stores, but that it is "highly unlikely" they will sell as many as they did to EE and Vodafone.

"I would manage down your expectations on any material value expected to come from that exercise," he added.

Sky News reported earlier on Tuesday that Phones 4U's rival Dixons Carphone (LSE: DC.L - news) is interested in acquiring 50 to 100 stores, but that it intends to negotiate directly with the properties' landlords once they have been closed down.

The bonds slipped slightly following the call, dropping from a bid of 36.5 to 35.125 according to Tradeweb, but has since recovered back to around 36.5 on Wednesday morning.

The bonds were bid as low as 8 last week, according to Tradeweb, but a restructuring lawyer said they knew one distressed debt buyer that bought in for as low as 5.

The lawyer said that if the debt-for-equity swap proposed by some bondholders had occurred the bonds would have traded down substantially, as it would "open a real Pandora (Other OTC: PNDZF - news) 's box."

The reduced chance of further store sales was not the only bad news for bondholders on the latest call. Copley also said that bondholders do not appear to have security over Phones 4U's LIFE mobile business.

LIFE is a virtual mobile network that piggybacks on the EE network, and is primarily aimed at customers who have been turned down by the other major networks for credit reasons. After a preliminary assessment, however, Copley said that it looked as if any realisations from LIFE will pay that company's creditors ahead of Phones 4U's bondholders.

Finally, Copley said that no bondholders had chosen to learn private information yet, as doing so would restrict their ability to trade the bonds. Copley said that a private forum for bondholders will be needed, however, if they wish to pursue litigation for clawback claims from the company's private equity owners, directors or the mobile operators. (Reporting by Robert Smith)