Slaughter and May has come to the aid of Colt Telecommunications to fight off a controversial bid by rebel bondholder Highberry, which is attempting to put the company into administration.
Highberry, a hedge fund controlled by the US-based Elliott Group, holds around £75m of Colt bonds and claims that the UK telecoms carrier will not be able to meet bond payments due between 2005 and 2009.
At this stage no petition has been made to the High Court, although The Lawyer understands that one is pending.William Underhill, leading the team for Slaughters, said: “As the company has made plain, the case is completely without merit.”
Indeed, the surprising feature of Highberry's challenge is that Colt has not once defaulted on a payment and has around £1bn in cash on its balance sheet.
A source close to the matter said: “Colt has raised a lot of money on capital markets. If the bondholders were right, they would stand to gain a large proportion of the cash for themselves.” The source added that it was also surprising for a bondholder to make predictions about a repayment that was not due for another couple of years. “It's an interesting approach,” said the source. “If Colt's in trouble, there would be a large number of companies in trouble.”
However, the secretive New-York based Elliott Group has a reputation for playing a mean game in such situations. The hedge manager is perhaps best known for securing a £37m payout from the Peruvian government over a similar bond repayment dispute. It was also reportedly involved in a similar dispute with Samsung earlier this year.
Leading the charge for Highberry is Cadwalader Wickersham & Taft. The US firm has acted for the Elliott Group for a number of years, originally getting involved on the Barings dispute. The two partners working on the action are Andrew Wilkinson and Michelle Duncan, both of whom are based in the UK. However, the firm declined to comment on the matter.
Highberry has struck back at Colt with an analysis of the company's balance sheet. In a report undertaken with the help of one of the big four accountants, Elliot Advisors, part of the Elliot Group, said Colt faced “inevitable insolvency”.