HawTel bankruptcy plan OK'd


POSTED: Saturday, November 14, 2009

After four days of deliberation and hours of painstakingly detailed testimony, U.S. Bankruptcy Judge Lloyd King confirmed Hawaiian Telcom's bankruptcy reorganization plan yesterday.

The confirmation comes nearly a year after HawTel first filed for bankruptcy in December, and is considered a coup for the state's largest telecommunication provider as it struggles to become profitable again.

The plan now goes before the state Public Utilities Commission for approval, a process that could take six months or more.

“;I'm absolutely pleased with the judge's decision,”; said Eric K. Yeaman, president and chief executive officer of Hawaiian Telcom. “;It allows us to move forward with the plan we believe is executable and better serves the people and businesses of Hawaii.”;

The most pivotal part of the plan, according to Yeaman, is the reduction of debt to $300 million from $1.1 billion.

It also banks on the successful launch of Next Generation Television (NGTV), a “;triple play”; roll-out of phone, high-speed Internet and video service next year to compete head-on with Oceanic Time Warner Cable.

The plan was opposed primarily by the committee of unsecured creditors, who argued that HawTel “;grossly undervalued”; the company's assets, leaving creditors the short end of the deal in payouts.




”;It allows us to move forward with the plan we believe is executable and better serves the people and businesses of Hawaii.”;
        —Eric K. Yeaman / President and CEO, Hawaiian Telcom



On the other hand, HawTel and its secured lenders, who backed the reorganization plan, said the committee's numbers were inflated and sprinkled with a dose of “;pixie dust.”;

Expert testimony from financial consultants were pitted against one another over valuation methodologies.

HawTel's consultant, Lazard Freres & Co., placed the value of the company at about $460 million, while the committee's consultant, FTI Consulting, placed it at about $682 million.

The secured lenders' valuation expert, Houlihan Lokey Howard & Zukin Capital Inc., placed the company's distributable value at about $420 million.

King said he agreed with the valuation supplied by HawTel but that he had problems with the committee's numbers, which he said were trying to reach “;some position of reality”; but were much too high.

While he wished the two parties could have come to an agreement, King said it was essential to move the case along.

Real estate appraisers also were brought in to testify whether the value of about 19,000 easements—the areas through which HawTel's network of cables and fiber run, typically on poles shared with Hawaiian Electric Co.—had any real estate value.

HawTel's appraisal expert said given that no viable buyers would purchase the easements, they were worth nothing, while the committee's appraiser valued them at $54.5 million.

Also at issue was whether it was fair to issue warrants—rights to purchase common stock at a discount—to senior note-holders instead of straight equity. HawTel said issuing the warrants would result in significant tax savings.

King said he felt the warrants were properly valued.

HawTel, which was acquired by the Carlyle Group of Washington, D.C., in 2005 for $1.6 billion, expects to emerge from bankruptcy next spring with at least $50 million in cash, and projects positive net income in 2011.

Walter Dods, HawTel's chairman, also was pleased with the judge's decision.

“;All along we thought this was the right thing to do,”; said Dods, “;and the judge has given us a chance to get back to business.”;