Judge OKs HawTel revival plan


POSTED: Friday, August 28, 2009

Hawaiian Telcom is another step closer toward emerging from Chapter 11 bankruptcy after winning court approval of its plan for reorganization.

U.S. Bankruptcy Judge Lloyd King approved yesterday a detailed, 333-page disclosure statement explaining the plan, saying he wanted to get the case moving, despite objections from the unsecured creditors' committee.

The company will begin soliciting support for its plan in September over a 30-day period.

A confirmation hearing is scheduled for Oct. 7.

HawTel's plan reduces the company's debt by nearly $790 million—to $300 million from $1.1 billion.

Similar to what was originally proposed in June, HawTel plans to convert about $590 million of the company's senior secured debt into equity and a $300 million loan.

The latest version of the plan, filed Sunday, also agreed to keep employee pension benefits and a collective bargaining agreement in place with the International Brotherhood of Electrical Workers, Local 1357, which represents about 850 of the 1,450 workers at the company.

The three-year collective bargaining agreement was entered in September.

To address another $370 million in debt owed to holders of senior notes claims, HawTel proposed issuing new warrants that can be used to purchase common stock at a 12.5 percent discount over five years.

A total of about $160 million, meanwhile, would be forfeited by another group of creditors holding subordinated notes, including the Deutsche Bank National Trust Co.

Overall, HawTel projects it will emerge from bankruptcy by the end of March with at least $45 million in cash and much of the company under the ownership of senior secured lenders.

In its financial projections, it expects to lose $109.9 million this year, earn $116.1 million in the first quarter of next year and then lose $6.2 million between the second and fourth quarters of 2010.

But by 2011, HawTel projects positive net income of $7.1 million, based in part on the impact of new products and services, including video.

HawTel, formerly Verizon Hawaii, was acquired by Washington, D.C.-based private equity firm Carlyle Group for $1.6 billion in 2005.

The Honolulu-based telecommunications company has struggled with transition difficulties, in addition to continued land-line subscriber losses and heavy discounting from competitors.

With mounting debt, HawTel filed for bankruptcy in December.

The committee of unsecured creditors objected to HawTel's plan yesterday, arguing that it was un-confirmable.

The committee objected first to the issuing of warrants to senior notes holders because they would have to pay out of their own pockets to purchase common stock.

Attorneys for the committee said it was like asking someone owed a car to fly to Moscow to get it.

HawTel attorneys said issuing the warrants would result in substantial tax savings for the company, and that they have been issued in other bankruptcy cases.

The creditors committee also objected to a $500,000 cap on unsecured claims.

King ruled yesterday that the committee's objections could be addressed during the confirmation hearing. His ruling, he said, did not suggest by any means that the proposed plan would be confirmed in October.

Ballots in support or opposition to the plan are due by Sept. 30.

If confirmed, HawTel's plan is still subject to regulatory approval by the state Public Utilities Commission, which could take another six months or more.

Sandwich Isles Communications Corp. offered $400 million in June to buy HawTel out of bankruptcy but has yet to file its own reorganization plan.