Hawaiian Telcom Communications Inc. has become the largest company primarily operated in Hawaii in terms of debt to file for bankruptcy reorganization, saying yesterday that increased competition and an economic downturn prevented it from reaching an agreement with creditors over $25.6 million in interest payments.

The company and seven affiliates filed Chapter 11 petitions in U.S. Bankruptcy Court in Wilmington, Del., listing $1.35 billion in assets and $1.27 billion in liabilities. Hawaiian Telcom is incorporated in that state. It is the largest bankruptcy to hit Hawaii since department store chain Liberty House Stores filed for bankruptcy protection in 1998 with assets of $284.2 million and liabilities of $248.4 million.

Steven Golden, vice president of external affairs, said it is likely the court will decide at a hearing today to allow Hawaiian Telcom to use its cash to continue operating. The company said its $75 million cash on hand as of yesterday gives it “;sufficient liquidity”; to fund wages for its 1,474 employees, customer programs, payments to vendors and suppliers, and overall operations for the near future.

“;Business will continue as it has,”; he said. “;This was a step in the process to ensure our competitiveness in the market.”;

  The company will not seek state assistance to continue operating, Golden said, although it might need state Public Utilities Commission approval of reorganization plans. He said he was unsure how long the proceedings might take.

Hawaiian Telcom Filing For Bankruptcy

 

It is the first time in Hawaii's history that a major utility has sought bankruptcy protection.

 

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  “;The decision by Hawaiian Telcom to file for Chapter 11 bankruptcy protection is an important step in the process of restructuring the company's finances and operations, given the current state of the telecommunications and financial marketplace,”; PUC Chairman Carlito Caliboso said in a statement. “;Hawaiian Telcom has kept the Public Utilities Commission apprised of the company's balance sheet restructuring efforts and has informed us that it seeks to emerge from this process as a financially stronger company.”;

The company said in the filing that it has as many as 5,000 creditors. Chairman Walter Dods, who said in a statement yesterday that the board “;fully supports the company's actions,”; also heads a team of two dozen groups with more than $30 million invested in Hawaiian Telcom.

That team is made up of secured and unsecured creditors, with reorganization terms yet to be ironed out, Golden said.

Hawaiian Telcom has lost more than $235 million since Washington, D.C.-based private-equity firm Carlyle Group acquired Verizon Communication Inc.'s Hawaii assets for $1.6 billion in 2005. The Honolulu-based telecommunications company has struggled with continued land-line subscriber losses and heavy discounting from competitors.

Debt includes $200 million in 9.75 percent senior notes, $150 million in 12.5 percent senior subordinated notes and $150 million in senior unsecured floating rate notes. US Bank National Association was listed as the creditor. Hawaiian Telcom also has another $574.6 million in loans. Its next-largest creditor after US Bank is Colorado-based Local Insight Media, the buyer of Hawaiian Telcom's directory business, listed at $6.8 million. Utility Hawaiian Electric Co. is listed at $1.2 million.

        “;It looks like it is the largest in terms of debt load of a case that has Hawaii implications that we have seen,”; Honolulu attorney David Farmer said. Farmer is not associated with the case.

The company said in its quarterly filing last month that there was no assurance that it would make $25.6 million in interest payments due Nov. 1 to pursue restructuring options. It opted to use a 30-day grace period on the payments.

Representatives from the state will be present at the hearing in Delaware today to make sure Hawaiian Telcom continues to operate, state Department of Commerce and Consumer Affairs Director Lawrence Reifurth said.

“;The expected outcome and the very likely outcome is that they are going to emerge from the proceeding and not go under,”; he said. “;That would certainly be a primary concern of the state.”;

Eric Yeaman, who took over as president and chief executive officer in June to replace turnaround specialist Stephen Cooper, hired Lazard Freres & Co. LLC as its financial adviser to assist in the evaluation of balance-sheet restructuring options several months ago.