After months of talk about reorganization and debt reduction, Hawaiian Telcom Communications Inc., a portfolio company of
The largest telecommunications provider in the fiftieth state attributed the filing to increased competition, an inability to meet capex needs while servicing its debt, the downturn in the economy and difficulties in transitioning certain back office functions from former owner Verizon Communications.
Carlyle Group acquired Hawaiian Telcom in May 2005 for about $1.6 billion. On Nov. 1, the company opted not to make a semi-annual $25.6 million interest payment on its $500 million in senior notes. That started the clock on a 30-day grace period before the nonpayment was considered an event of default. The company then announced its bankruptcy filing on Dec. 1, the day the grace period expired.
As of Nov. 30, Hawaiian Telcom had approximately $75 million of cash on hand, which it said would be enough to fund operations and expenses, including employee wages, for the near-term. On Dec. 3, the company was granted interim authority from the bankruptcy court to use its cash to continue to “fund the business in the ordinary course, without interruption,” though final approval will not be given until a Jan. 5 court hearing.
Hawaiian Telcom’s revenues dipped to $340 million for the nine months ended Sept. 30, down from $367.3 million in the same period a year earlier. The company’s net loss came in at $105.3 million in the first nine months of 2008, a far cry from net income of $7.4 million for the comparable period the year before. “The current competitive and regulatory environment has not allowed the company to obtain performance levels projected at the time of the acquisition,” the company said in a regulatory filing, before concluding that it was shackled with too much debt relative to its operating performance.
In June 2007, Hawaiian Telcom’s credit agreement was amended to include a reduction in the size of the company’s revolving credit facility to $90 million from $200 million. The company also took on a new $860 million seven-year term loan, which it used to repay the term loan facility under its former credit agreement and to repay $109 million in revolver borrowings. The company’s current debt load includes about $575 million in outstanding loans and another $500 million in bonds.
Hawaiian Telcom, which has more than 1,400 employees, had been working with its creditors since October to restructure its balance sheet before finally determining that Chapter 11 provided the best means to restructure its debt with minimal impact to the business.
“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,” Hawaiian Telcom’s president and CEO Eric Yeaman said in a statement.
Equity for Carlyle Group’s acquisition of Hawaiian Telcom came from
This setback for Washington, D.C.-based Carlyle Group comes just as it acknowledged its own restructuring plans, eliminating 100 jobs, or roughly 10 percent of its headcount. As part of the cost-cutting, the firm is closing its office in Menlo Park, Calif., which had been open less than a year. A Carlyle spokesperson cited market conditions for the layoffs.