Insults fly as hedge fund pursues Colt Telecom in court

Colt Telecom has been accused of "gambling" with creditors' money by a hedge fund, which is pursuing the struggling telecoms company in the High Court in a bid to force it to restructure.

Highberry, which owns £75m of bonds in Colt, began the first day of the case yesterday by alleging the company was "haemorrhaging" cash, making it very unlikely it would be able to repay its debts.

Highberry, which is part of New York-based Elliott Associates, is also dissatisfied because Colt has not spelled out what action it will take if it does not have enough cash to meet its obligations. John Brisby, Highberry's QC, said: "In the absence of refinancing or a capital injection from a fairy godmother, Colt will default on its bonds in 2006."

According to Highberry, the situation exposes the Colt management to criticism that they have acted irresponsibly. "They are gambling with our money," Mr Brisby said.

Colt rejects the allegation that it will not be able to start repaying debt on the £1.1bn of bonds it has issued when they start to mature in 2005. It said: "Colt believes it will be able to pay its debts when they fall due. Colt expects to be cashflow positive during 2005."

Nevertheless, the company gave one of its strongest hints to date that its majority shareholder, Fidelity, would bail it out if it needs a cash injection, saying: "Colt believes it will be able to obtain finance in the future on reasonable terms."

Highberry hit back at being described as a "vulture fund" trying to take advantage of a company in distress. Mr Brisby said: "If we're vultures, it implies that Colt is either dead or nearly dead, which is rather our case." The case is expected to be concluded next week.