Hawaiian Telcom Communications Inc. filed for bankruptcy early today after increased competition and an economic downturn prevented it from reaching an agreement with creditors over $25.6 million in interest payments.

The company, which has been working on a balance sheet restructuring since October, and seven affiliates filed Chapter 11 petitions in U.S. Bankruptcy Court in Wilmington, Del., listing $1.4 billion in assets and $1.3 billion in debts. 

The company said its $75 million cash on hand as of yesterday gives it “sufficient liquidity” to support operating expenses in the near future. Subject to court approval, the cash will fund wages for its 1,474 employees, customer programs, payments to vendors and suppliers, and overall operations. The company said it will continue to operate without interruption. 

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. 

“Our decision to restructure through a Chapter 11 filing allows the company to reduce its level of debt and reorganize its business, so we can emerge a stronger and more financially secure company better able to compete in the ever-changing communications industry,” Eric Yeaman, Hawaiian Telcom’s president and chief executive officer, said in a statement. “I strongly believe that the filing provides the right course of action to support what is in the best interests of our customers, employees, suppliers and other valued constituents.” 

The company cited increased competition, an inability to satisfy its spending while continuing to pay debt, a significant downturn in the economy, as well as the difficulties in the transition of back-office functions from Verizon. 

Hawaiian Telcom has had three straight quarterly losses this year after posting a profit in the fourth quarter of 2007 on the sale of its directory publishing business. It has had three profitable quarters since Carlyle took over.  

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. 

Hawaiian Telcom said it didn’t make $25.6 million in Nov. 1 interest payments on the three note issues and said it will use the 30-day grace period to “continue balance sheet restructuring discussions with its creditors.” 

The company said in its latest quarterly filing last month that there was no assurance that it would make the interest payments during the grace period or otherwise reach an agreement with creditors on restructuring. If not resolved by today, the company said the payments and debt would become immediately due and payable, and it may need to file for bankruptcy to reorganize its capital structure and restructure its business. 

Hawaiian Telcom said today it will continue to implement its strategic plan, which is focused on improving customer service, enhancing processes and systems to rebuild customer and community confidence and simplify its offerings while focusing on the introduction of new products. 

“The Hawaiian Telcom board fully supports the company’s actions and believes that Eric Yeaman and his management team are making the hard, but necessary decisions to address the company’s financial challenges,” Walter Dods, Hawaiian Telcom’s chairman, said in a statement. 

The company said it will continue to work closely with the state Public Utilities Commission and other government officials. 

Gov. Linda Lingle said in a statement that she will continue to follow the details of the legal proceedings in the days ahead. 

“Our Department of Commerce and Consumer Affairs, the Consumer Advocate and the Public Utilities Commission has been closely monitoring the company’s financial circumstances and correspondingly has been informed of the company’s hopes to restructure in an effort to make Hawaiian Telcom financially stronger,” she said.