Hawaiian Telcom Communications Inc. filed a proposed turnaround plan to lower its leverage by converting debt into equity in the reorganized company.

Under the plan, filed late Wednesday in U.S. Bankruptcy Court, about $590 million of the company's senior secured debt would be converted into equity and a new $300 million senior loan maturing in five years.

A July 23 hearing was scheduled to approve the disclosure statement, or description of the plan.

“;The terms of the new debt give us greater financial flexibility to execute our business plan and invest in new products,”; Hawaiian Telcom Chief Executive Eric Yeaman said in a statement.

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

The plan calls for holders of about $350 million in senior notes to be given rights for 12.75 percent of the new equity and rights to buy as much as $50 million more, Hawaiian Telecom said. Senior subordinated notes and common shares of $150 million would be canceled, it said.

Hawaiian Telcom said the proposed plan will allow it to emerge from bankruptcy with at least $45 million in cash and access to $30 million in a revolving credit facility.

“;The plan provides for a significantly de-leveraged capital structure, lowering our debt by nearly $790 million, from $1.1 billion to $300 million, positioning us to emerge from bankruptcy a stronger and more financially secure company,”; Hawaiian Telcom spokesman Brian Tanner said.

If the disclosure statement is approved, a hearing to confirm the proposed plan is tentatively scheduled for Sept. 23.

The turnaround plan comes as Hawaiian Telcom's secured creditors face a lawsuit by a committee of unsecured creditors challenging the extent and validity of their liens in the case.

A hearing in that lawsuit is scheduled for July 30.

Separately, Hawaiian Telcom said it is closing three of its retail stores due to decreased market demand and the high cost of maintaining a retail presence in those markets. The Kapolei store closed Tuesday; the Windward location will shut down this upcoming Tuesday, and the Lihue outlet on June 16.

The company said it would try to find appropriate positions or provide transitional services for the 23 full- and part-time employees who are affected.

Star-Bulletin staff writer Dave Segal contributed to this story.