EE and Vodafone buy Phones4u stores

The senior secured bondholders in the retailer are left with €430 million worth of debt, on which S&P expects only 10-30 percent recovery rates.  

PwC, the administrator on collapsed UK retailer Phones4u with more than £635 million (€807 million; $1,037.5 million) debt outstanding, has sold some of the company’s estate and transferred more than 2000 of its staff to EE and Vodafone.

Britain’s biggest mobile operator EE has agreed to buy Phones4u’s interest in 58 stores, excluding inventory, for £2.5 million with immediate effect, PwC said on Monday. The sale will see 359 jobs transferred, the shops rebranded EE and opened as soon as next week. Last week Vodafone UK agreed it would take over 140 stores, preserving 887 jobs. It’s understood that the sale is worth £12.5 million.

“We consider that this represents the best potential outcome for creditors in the circumstances for these stores,” PwC said on Monday before court approval was granted. In all, 1647 staff will be made redundant and 362 stores will be closed.

Dixons Carphone, the owner of Carphone Warehouse, has agreed to take on 800 employees. It is due to express an interest in buying 50 to 100 stores, Sky News reported. However, it intends to negotiate directly with the properties’ landlords once they have been closed down, its sources said.

The sales follow efforts from bondholders to secure a debt for equity swap late last week. Law firm Brown Rudnick advised on a proposal. However, PwC said there was “no realistic chance” of success. Senior secured bondholders are owed £430 million, on which S&P estimated recoveries of 10 to 30 percent last week. There is also a £205 million payment-in-kind bond outstanding and a super senior revolving credit facility of £125 million. S&P said that the company had made no cash drawings on it but that it had used about £20 million for letters of credit.

Phones4u entered administration on 15 September after O2, Vodafone and EE all terminated contracts with the retailer in succession and which started in January, leaving the retailer with no main supplier. In a statement announcing the news, private equity owner BC Partners criticised Vodafone in particular for not giving Phones4u enough time to “develop commercial alternatives.”

Soon after, the London-based firm came under fire for paying itself a dividend recap and loading Phones4u with more debt via a PIK note in September 2013, now expected to be worthless. BC Partners reportedly made 30 percent on its original investment through the notes. The fallout from the collapse weighed heavy on the high-yield market sentiment last week, ECM Asset Management said.

Allen & Overy is advising PwC on any potential litigation claims that may arise from the demise of Phones4u.