Doughty Hanson Faces Cash Call For Mobile Firm

DOUGHTY HANSON, the private-equity firm, may have to raise funds to rescue its troubled phone-distribution company, 20:20 Mobile, or risk losing its £105m investment.

Doughty, which bought the company just 16 months ago from billionaire John Caudwell, will be asked to pump more cash into the business or face 20:20 being taken over by banks in a debt syndicate that includes Bar-clays and Lloyds TSB.

Hedge funds that specialise in “distressed” debt have already been offered the chance to buy loan notes in 20:20 at a cut-rate discount to their face value.

On Friday the senior debt was trading at less than half price while the mezzanine tranche was almost worthless. One trader said: “The market believes the sponsor will have to inject cash or sort out external funding for the company to keep going.

“The company hasn’t yet breached banking covenants but it’s pretty close, and there’s another test day coming up at the year-end on December 31.”

Doughty made its equity investment of £105m when 20:20 was bought from Caudwell for £347m in August 2006. In October, debt traders say that 20:20 had £240m of secured debt, £87m of mezzanine debt and just £11m of cash.

At the time the debt was being supported by operating profits of only £25m. 20:20 has been hit by tough trading. Transporting handsets and accessories from manufacturers to retailers is a low-margin business, but it has been made even harder by supermarkets that are cutting out the middle man to take delivery of phones direct from the likes of Nokia and Motorola.

Its continental operations also suffered badly when Revenue & Customs cracked down on a Vat fraud that involved exporting phones, although 20:20 was not implicated.

And Dextra, its accessories division, was forced to refund network operators when independent retailers who sold on air-time from it went under.

The company revised down its financial targets at the start of the year. It proceeded to miss new milestones in August and November.

A crunch meeting that is scheduled with the debt syndicate on February 15 will review its performance during the crucial Christmas period, according to trade publication Mobile Today.

However, sources say the arrival of a new chief executive – the latest in a management mer-ry-go-round – could persuade the banks to hang on for an upturn.

The well-regarded Meinie Old-ersma arrived from IT distributor Ingram Micro last week and he may choose to expand beyond simply mobile logistics into computer goods. It has already shown an appetite to expand, paying about £80m in May to acquire the Swedish phones distributor AxCom.

Meanwhile, Caudwell has sailed around the world. In addition to selling 20:20 he sold his other telecom businesses, including Phones4U, and raised £1.5 billion. He has yet to resurface in business.

Doughty declined to comment.

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