HawTel cash use OK'd


POSTED: Friday, January 09, 2009

Hawaiian Telcom Communications Inc. has been given final approval to use its $90 million in cash to fund overall operations while it moves through Chapter 11 reorganization in U.S. Bankruptcy Court.

The motion was among several to get approval from bankruptcy Judge Lloyd King yesterday in the first major Hawaii hearing for the telecommunications provider, whose initial petition was filed on Dec. 1 in Delaware, where it is incorporated.

The company was granted interim approval in early December to use its cash on hand to continue operating.

Eric Yeaman, president and chief executive officer, said in an interview after the hearing that different buyers have put forth an interest in the company, which continues to work toward becoming financially viable.

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 as well as operational challenges during the Carlyle acquisition.

The company has said in previous proceedings that its cash on hand gives it “;sufficient liquidity”; to support operating expenses in the near future. Hawaiian Telcom has built up about $15 million in additional cash since its initial filing because it no longer has to pay bond interest or pre-petition claims.

Hawaiian Telcom attorney Paul Basta said during the hearing yesterday that “;no other carrier is likely to replicate”; the services provided by the company, particularly in rural areas of the state.

State Public Utilities Commission Chairman Carlito Caliboso said liquidation is not a viable option for the company because it would have “;tremendous consequences for the state,”; but he was skeptical that the state could provide subsidies or regulatory help to the company.

Subsidies would be “;a matter of available funds, and I'm not sure that any funds are available right now,”; he said, when asked about the possibility by King.

Other motions yesterday included approval of advisers and fees, one of which was disputed and held off until the next hearing, scheduled for Jan. 26. Concerns were raised about the retention of Lazard Freres & Co., a financial advisory firm, by the U.S. Trustee over a potential conflict. The company's other financial adviser is Zolfo Cooper Management LLC.

Hawaiian Telcom also requested an increase in attorney fees to $200,000 from $50,000 in the event that there is a disagreement with regard to security interest between bond holders and the company's 50 or so secured lenders.

Noteholders Pacific Investment Management Co. and Capital Research & Management Co., who said they represent the largest unsecured creditors, contended before the hearing that some of the fees, including a $6 million so-called success fee to be earned by the advisers just by confirming a plan or selling the assets, are excessive.

The petition listed assets of $1.35 billion against debt totaling $1.27 billion. Liabilities include $574.5 million secured by all the assets, senior unsecured notes of $350 million, $150 million in subordinated notes, and $40 million owing to trade suppliers.


Bloomberg News contributed to this report.