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Rating Action:

Moody's assigns a B2 CFR to Phones4u Finance plc; outlook stable

Global Credit Research - 21 Mar 2011

First time ratings

London, 21 March 2011 -- Moody's Investors Service has today assigned a corporate family rating (CFR) and Probability of Default Rating (PDR) of B2 to Phones4u Finance plc. ('Phones4u', or 'the company'). Moody's has also assigned a (P)Ba2 to the senior secured GBP125 million revolving credit facility maturing in 2017as well as a (P)B3 to the proposed 7-year GBP430 million senior secured notes. The outlook on the ratings is stable.

RATINGS RATIONALE

This is the first time that Moody's has assigned ratings to Phones4u. The ratings reflect Phones4u's leading position in the UK market for mobile phones and related financial services, in particular for products aimed at the youth market. The company operates 510 stores in the UK, and distributes mobile phone connections and handsets on behalf of the major original electronic manufacturers as well as network operators. Phones4u also retains a strong position in the UK for mobile phone insurance (MPI) and related bundled products, with the service having begun in 2000 initially under its own name. The ratings are constrained by the company's relatively small scale, with 2010 revenues of GBP912 million, and Moody's view that the company remains exposed to discretionary spending in a difficult trading environment, as well as the relative concentration of mobile network service providers whose products Phones4u markets.

The company's liquidity post refinancing is expected to remain strong, based on the expected availability at the close of the transaction of GBP75 million under its GBP125 million committed revolving credit facility (RCF), and GBP3 million in cash. The company's liquidity is supported by its positive free cash flow generation in recent years, although with significant swings. The RCF contains two financial covenants for leverage and interest cover, which Moody's believes provide headroom for a significant weakening in earnings.

The company's debt capital structure consists principally of the senior secured RCF, and the proposed secured notes. The notes are issued at Phones4u Finance plc, the parent holding company for MobileServ Limited, which is the owner of the operating subsidiaries and also a borrower of the revolving credit facility. Under the terms of an Intercreditor agreement, the RCF and the proposed secured notes retain the same security interest over 85% of assets and EBITDA of the group, although in a recovery scenario, the security will be applied to first to satisfy fully the claims of the RCF lenders, followed by those of the senior secured note-holders. On the basis of this structural subordination, the RCF is rated (P)Ba2 (LGD1), three notches above the CFR, while the notes are rated (P)B3 (LGD4).

On a pro forma basis for the transaction, and based on underlying EBITDA reported in 2010, Moody's estimates gross adjusted leverage to be c.4.8x. The stable outlook factors in the rating agency's expectation that this metric will remain below 5x over the medium term. The ratings also factor in sustained positive free cash flow generation and a strong liquidity profile. In this regard, the rating and outlook would require the positive trend in 2010 to be sustained. Upward pressure on the rating or outlook could occur if the leverage metric were to trend below 4x. Conversely, downward pressure on the rating or outlook could occur if leverage were to be sustained above 5x, or if concerns were to develop about liquidity.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

The principal methodologies used in this rating were Global Retail Industry published in December 2006, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Phones4u is a leading UK supplier of mobile phones and broadband services, as well as mobile phone insurance and other niche insurance products and services. In 2010 the company generated GBP912 million in revenues and reported GBP130 million in underlying EBITDA.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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London
Richard Morawetz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns a B2 CFR to Phones4u Finance plc; outlook stable
No Related Data.
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