Phones 4u Bonds Plunge After Vodafone Ends Network Agreement

Bonds of Phones 4u Ltd. plunged after Vodafone Group Plc said it won’t renew its network agreement with the mobile phone retailer when the contract runs out in February.

The 205 million pounds ($341 million) of 10 percent payment-in-kind notes due April 2019 issued by parent company Phosphorus Holdco Plc slumped 65 pence on the pound to a record 19 pence at 4:35 p.m. in London, according to data compiled by Bloomberg. PIK notes give the issuer the option of paying interest with more debt.

Phones 4u said it’s holding talks with other carriers to replace the business it had with Vodafone though there’s “no certainty” as to the outcome, according to a statement. The deal with Vodafone represented sales of about 212 million pounds and earnings of 18.5 million pounds before interest, tax, depreciation and amortization during the past 12 months.

Phones 4u is “both surprised and disappointed” with Vodafone’s decision not to renew the contract, the company said.

The Newscastle-under-Lyme, England-based company’s 430 million pounds of 9.5 percent bonds maturing April 2018 fell 41 pence to an all-time low of 61 pence, the data show.

Phones 4u is a victim of last month’s merger of Carphone Warehouse Group Plc and Dixons Retail Plc. Shares in Dixons Carphone Plc, which is benefiting from the greater reach it can offer carriers, rose as much as 7.7 percent and was the biggest gainer in the Stoxx 600 index, data compiled by Bloomberg show.

Vodafone will be “enhancing its distribution partnership with Dixons Carphone from early next year,” the Newbury, England-based carrier said in an e-mailed statement.

“As market leader, Dixons Carphone is much better positioned with networks,” according to a note from Exane SA analysts led by Simon Bowler.

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