Phones 4u investors denied bonds rescue package

Phones 4u's administrator has dashed hopes of rescuing the stricken retailer through a debt-for-equity swap.

Instead PwC, charged with finding buyers for the business, is trying to sell parts of the company to the mobile network operators who have been accused of hastening its demise.

Investors holding £430m of Phones 4u bonds had given hope to the retailer's 5,596 employees on Wednesday by proposing to swap their debt for shares in the business. But PwC said on a conference call with the bondholders on Thursday that there was no scope for such a deal.

Rob Hunt, a PwC partner, said: "Over the course of the last few days we have considered all restructuring options including a debt for equity swap. There is no realistic prospect of completing a debt for equity swap.

"We are still continuing to pursue dialogue with a range of parties for the core Phones 4u business. These are most live with three parties and we would hope at least one of those, and all three, would come through to a transaction in the coming days."

Hunt did not explain why a rescue deal with bondholders had been ruled out but he revealed Phones 4u was spending £1m a day of the £110m cash pile it had at the start of the week. It owes at least £200m to creditors excluding bondholders, PwC said.

Hunt thanked Phones 4u's employees and said they would continue to be paid "as a cost of the administration" ahead of other creditors while PwC looked for buyers.

Potential buyers of parts of the company, which has 550 standalone stores, include Vodafone and EE. The two operators have been accused by Phones 4u's owners of driving it out of business by ending their distribution deals, where the retailer sells contracts and handsets on behalf of those networks. Phones 4u closed its stores on Monday after EE's withdrawal, which followed Vodafone and earlier moves by O2 and 3.

BC Partners, Phones 4u's private equity owner, has disputed Vodafone's claim that Phones 4u could not negotiate a viable distribution deal because BC had laden it with too much debt. EE has also indicated that Phones 4u's debt, which is more than £700m, was a problem in negotiations.

Through its Phosphorous Jersey investment vehicle, BC called on bondholders to form a committee for direct talks.

"A lot has been written about this situation, and specifically about Vodafone's decision to withdraw from Phones 4u, followed shortly by a similar decision by EE. Phosphorus Jersey is concerned by the factual inaccuracy of certain reports," BC said.

Mark Sterling, a partner at the law firm Allen & Overy, which is advising PwC, said legal action against those involved in Phones 4u's disintegration was an option. "The administrators will in due course want to investigate potential claims against third parties."

Phones 4u had £89m of stock of which £67m was new handsets. About 60% of the handsets were made by Apple and Samsung and none of these were new products such as the iPhone 6. PwC expects to sell Phones 4u's profitable insurance business next week.