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* PwC reject bondholder restructuring during call
* Senior secured notes trade up after call
* PwC in "early stages" of exploring litigation (Adds detail, market opinion)
By Robert Smith
LONDON, Sept 18 (IFR) - Phones 4U's administrator, PwC, saidthere is little chance of a debt-for-equity swap proposed tosave the business of succeeding, during a phone call withbondholders on Thursday.
The phone retailer went into administration earlier thisweek after the country's biggest mobile operator EE joinedVodafone in not renewing its network agreement.
A group of Phones 4U's senior secured bondholders haveproposed to restructure the UK retailer, preparing to write downa significant chunk of their debt to save the business.
US law firm Brown Rudnick, which is representing theinvestors, approached PwC with the scheme.
Rob Hunt at PwC said the firm has considered allrestructuring options, including the bondholders' proposal, butadded there is "no realistic prospect for completing a debt forequity swap."
Hunt added that PwC is pursuing sales of the underlyingassets in the business with a range of parties, adding thatdiscussions are progressing well with three parties inparticular.
PANDORA'S BOX
A number of market sources said before the call that theydid not believe the debt-for-equity swap had widespread supportfrom secured bondholders.
"Why would real money investors want to take equity in thecompany as opposed to the cash from winding it up?" asked onehigh-yield bond investor.
"There's no way they'd do that, and real money investorsstill probably the hold the lion's share of the bonds."
A London restructuring lawyer said that he knew thebondholder group proposing the restructuring was not very large,and that most creditors would not want administrators to wastetime considering the proposal.
"With both contracts gone there is no going concern here,and administrators will be loathe to fritter cash away bykeeping the business running with no chance for survival," hesaid.
He added that their recovery analysis was in the mid-20s ina liquidation for bondholders, but the bonds would trade lowerif a debt-for-equity swap occurred as it would "open a realpandora's box."
As such the bid on the £430m 9.5% 2018 senior secured bondshot up in the secondary market after the call, from a cashprice of less than 23 to 30, according to Tradeweb.
On the call, Hunt said that the business had a net cashbalance of around £110m when they were appointed. This wouldfirst discharge obligations on a revolving credit facility (RCF)and preferential claims, with the RCF drawn by £20m.
THIRD-PARTY CLAIMS
During the call PwC discussed the prospect of pursuinglitigation or clawback against mobile phone operators,shareholders, directors or any other third-parties.
PwC's legal counsel said on the call that the administratoris in the early stages of investigating whether it wants topursue legal claims against third-parties.
"They will in due course look for legal advice from us as towhether they have claims which are worth pursuing againstthird-parties," said Mark Sterling, a partner at Allen & Overy.
A second high-yield investor said that bondholders would nodoubt be considering lawsuits but said it would be "a toughfight."
"Creditors may want to explore suing shareholders, but theburden of proof for any clawback is pretty high," he said.
"In the UK you've got six months to successfully prove thata company was knowingly saddled with excessive indebtedness."
BC Partners and the company's management have made anoverture to creditors, issuing a statement that they would liketo meet with a bondholder committee to discuss "thecircumstances around the demise of Phones 4U."
In the statement, BC Partners and management said that theywere devastated by what had happened and were "concerned by thefactual inaccuracy of certain reports" over the circumstances ofVodafone and EE pulling their agreements. (Reporting by Robert Smith; editing by Alex Chambers)
