Moody's reviews Phones 4U's credit rating after Vodafone deal ends

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Moody’s has placed Phones 4U’s credit rating under review after the retailer revealed its network agreement with Vodafone would not be renewed.

Phones 4U currently has a B3 corporate family rating, but credit ratings agency Moody’s warned this could be downgraded because its ratings rely on it being an important outlet for mobile operators to sell through.

However, Moody’s said the Vodafone agreement coming to an end means the assumption that Phones 4U is an important outlet for mobile operators is “jeopardised”.

Phones 4U is under further pressure because it is facing a termination of its store-in-store agreement with Dixons in May 2015 after Dixons merged with Carphone Warehouse last month to create Dixons Carphone.

The review by Moody’s will assess the likelihood of Phones 4U being able to replace the revenue and cash flow streams from the Dixons and Vodafone contracts and its ability to defend its business model as competitors change tactics.

Phones 4U’s contract with Vodafone comprised 20% of its revenues and gross profits, while the end of the partnership with Dixons puts 8% of its EBITDA at risk.

Following news its partnership with Vodafone would come to an end, Phones 4U chief executive David Kassler said: “Phones 4U continues to trade well in the market. We have high levels of market share, especially in the youth segment, and our own network Life Mobile is now fully road-tested and enjoying a great first year with customer growth ahead of our expectations.

“Independent researcher, YouGov, rated Phones 4U as number one for iPhone buying experience, which is perfect preparation for the Apple announcements expected this month.”