A New York-based hedge fund calling for Colt Telecom to be placed into administration said today the group’s insolvency was “inevitable”.
Highberry questioned the health of Colt’s balance sheet and said it was concerned cash was being wasted on unprofitable trading.
It added: “Highberry believes that insolvency is inevitable, especially given Colt’s history of failure to meet forecasts and targets.”
The fund holds around £75m-worth of Colt Telecom bonds and intends to petition for an administrator to run the business next week.
It believes the telecoms group will not be able to refinance or meet payments on £1.2bn of bonds that mature during 2005 and 2009.
London-based Colt vowed to fight the action when revealing Highberry’s intentions yesterday, claiming it was acting out of self-interest.
Highberry, part of the US Elliott Group, today said it was acting for the benefit of “all creditors and stakeholders”.
Colt runs voice and data networks across the UK and Continental Europe but has been hit hard by firms cutting back investment in new systems.
Last month the group, which employs 5,000 staff, axed 800 jobs and said it was writing-down the value of its assets by £550m.
It has a cash pile of around £1bn with no bank debt and believes it will be cash flow positive by 2005 as trading begins to improve.
But Highberry today said even after the asset write-down Colt’s balance sheet “does not property reflect the true value” of the business.
It added that if the group hit its cash flow target there would still be “insufficient funds” in place to meet the bond payments.
A spokesperson for Colt said today: “We are getting on with the job of running Colt for the benefit of its stakeholders.
“We have already asserted that Colt has a sound financial future and that Highberry’s claims are self-serving and without merit.
“There is a legal process which they as bondholders are entitled to follow and it is now for the courts to decide who is right.”
Colt’s shares were down 1p at 34p by mid-morning, a fall of nearly 3%.
EGi News 10/10/02
