Hedge fund Highberry Ltd will make a final bid tomorrow to convince a London high court that European carrier Colt Telecom Plc should be put into administration because it will be unable to pay its debts after 2005.
The bizarre court case revolves round predictions of future cash flow, a science that Justice Jacob compared to crystal ball gazing. However, the two sides in the case wheeled out accountants to argue over whether Colt will eventually be insolvent.
They relished the opportunity to cross swords over the methodology of calculating Colt’s weighted average cost of capital (WACC), which is used to discount future cash flow estimates. Colt, which is backed by auditor PriceWaterHouseCoopers, believes it to be 13.7%, while its independent accountant Ernst & Young put it at 15%. Highberry has the support of accountants KPMG in putting the figure at 24.67%.
Highberry bought 75m pounds ($117.7m) of Colt’s bonds at a highly discounted price and, if the company went into administration, would end up with a sizable slice of the reorganized company’s equity after it had been reorganized. That is its motivation for sending its accountants into an expensive legal battle that will reach a climax tomorrow when it attempts to demolish Colt’s defenses.