Phones 4U in 11th hour rescue plan
18/09/2014
Phones 4U, who look set to go bankrupt due to a loss of key suppliers, could be offered a final reprieve by the company’s creditors.
The company recently lost contracts with both Vodafone and EE, which essentially meant the business is no longer commercially viable.
However, the companies creditors, who own £430m of senior bonds in the company have put pressure on mobile operators to accept a deal that would effectively swap their equity in Phones 4U in return for a proportion of the money they are owed.
If the mobile operators were to accept the deal, it would effectively mean that they would become stakeholders in the business, so it would be in their best interests to renew any contracts that are set to expire.
If the company was to go bankrupt, then it is likely that all 5,596 of their workers would most likely become unemployed. Although Dixons Carphone, who host 160 in-store Phones 4U concessions have agreed to take on 800 of their staff.
Louise Verrill, a partner at Brownwick Rudnik, the company acting on behalf of their creditors said: “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.
“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.”
Commercial terms
It is believed that before the mobile operators decided not to renew their contracts, Phones 4U were offering commercial terms which were almost twice as costly as their main rival, Carphone Warehouse. However, as the company had been burdened with a debt by its owner, these were the best terms it could offer.
If the creditors were to swap their bonds with mobile operators such as Vodafone and EE, then this debt would no longer be as big an issue and the company would be able to offer more attractive rates to mobile operators, who would effectively be stakeholders in the business.
Ms Verrill said: “We look forward to collective meaningful engagement with Vodafone and EE, to save the jobs and maximise returns to creditors and other stakeholders.”
Despite this offer, it is still understood that any salvage deal is unlikely, as Phones 4U would have to revive other partnerships with Apple and Samsung, as well as its credit insurers. Both Vodafone and EE declined to comment on the possibility of the deal going through.
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