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Trustee opposes HawTel bonuses


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POSTED: Wednesday, April 01, 2009

Hawaiian Telcom Communications Inc., the bankrupt telephone company owned by Carlyle Group, should be blocked from paying $15.5 million in bonuses to executives and workers, the company's U.S. trustee told a judge.

The awards for last year and this year, of $6 million and $9.5 million respectively, should be denied because they were improperly increased or preempted by the bankruptcy, Acting U.S. Trustee Tiffany Carroll said Monday in court papers. Trustees represent the government in bankruptcy cases.

“;The debtors apparently seek to pay its management above- market and increasing cash compensation, despite this Chapter 11 filing, ongoing projected losses, and costly management consultants,”; Carroll said in the filing in U.S. Bankruptcy Court in Honolulu, where Hawaiian Telcom is based.

In its request to pay bonuses, mostly to six executives and 494 nonunion workers, Hawaiian Telcom said the 2008 amount was reduced from $7.9 million to win the support of lenders. A hearing on the bonuses is scheduled for April 16.

The proposed 2008 bonus pool would split about $2 million among Hawaiian Telcom's 917 union members, while 494 nonunion workers would receive $3.6 million, according to Carroll. Six senior vice-presidents would get aggregate bonuses of almost $433,000, she said.

A committee of Hawaiian Telcom's unsecured creditors also objected to the bonuses, arguing the company couldn't justify “;lucrative”; payments after estimating it would lose $80 million during the two-year period covered by the program.

“;Payment of bonuses in this economic climate in the amounts proposed by the debtors (particularly without tying those payments to a successful emergence from Chapter 11 or even, at least, improved performance) is simply not a proper exercise of the debtor's business judgment,”; the committee said in a filing.

The committee said it was especially concerned because it doesn't know whether unsecured creditors will recover anything on their claims. The group proposed paying just a portion of the 2008 bonuses and delaying the 2009 bonuses until after Hawaiian Telcom emerges from Chapter 11.

Carroll, the U.S. Trustee, suggested that 2008 bonus recipients should file claims like other unsecured creditors.

“;The majority of the 2008 incentive bonuses constitute pre-petition unsecured claims,”; Carroll said in the filing. “;Such claims are not entitled to be paid at this time ahead of other creditors similarly situated.”;

The 2009 proposal was targeted for different reasons.

Hawaiian Telcom gave “;no explanation for why it seeks to offer substantially larger bonus amounts despite generally more modest performance goals as compared to 2008,”; Carroll said. “;Bonus amounts for employees should not be increasing.”;

Carroll left unchallenged some portions of the 2008 bonus plan, saying payments capped at $10,950 for work performed within 180 days of the bankruptcy filing had so-called favored status. A union representing hourly workers said in court papers that the bonuses for its members were “;modest.”;

The awards “;are a valuable tool to motivate employees' performance that is directly aligned with the company's performance,”; the company said in the filing. “;Hawaiian Telcom exceeded the threshold targets for revenue.”;

The company, with 1,400 workers, sought court protection on Dec. 1, listing assets of $1.35 billion. Hawaiian Telcom blamed its bankruptcy partly on transition difficulties after Carlyle, a Washington-based private-equity firm, bought Hawaiian Telcom from Verizon Communications Inc. in 2005 for $1.6 billion.