Carlyle-backed Hawaiian Telecom files bankruptcy

The largest telephone carrier in Hawaii cited a heavy debt load, increased competition and market turmoil as reasons to seek protection under Chapter 11 while it restructures its business.

The Carlyle Group-backed Hawaiian Telecom Communications, the largest telephone carrier in Hawaii, has stumbled into bankruptcy under a heavy debt load amassed when the global buyout firm acquired the company in 2005.

Carlyle bought the telecom company for $1.6 billion, using $425 million of equity in the transaction and funding the rest of the deal with debt. The company has been working with its lenders since last year in restructuring its debt agreements and negotiating amendments to the terms of its loans.

Hawaii Telecom’s chief financial officer, Robert Reich, said several factors were to blame for Hawaiian Telecom’s bankruptcy filing, including current market turmoil and the rise of options from competitors that bundle phone, cable and internet in a low-cost package.

“Interest costs on Hawaiiain Telecom’s significant debt burden impose limitations on Hawaiian Telecom’s ability to create and offer new products and implement its revised strategic business plan,” Robert Reich, chief financial officer with Hawaiian Telecom, said in a filing with the US Bankruptcy Court in Wilmington, Delaware. “The recent turmoil in the equity and credit markets has limited [the company’s] ability to attract potential investors and likely will have an adverse effect on consumer spending.”

Hawaiian Telecom fully expects to restructure under bankruptcy protection and come out a stronger company, Reich said. 

“Hawaiian Telecom remains confident that, by utilizing the tools afforded by the bankruptcy code, [the company] can achieve its long-term goal of becoming the preferred, one-stop provider of communications services and products for business and residential customers throughout Hawaii,” Reich said.

Another Carlyle-backed company, Sem Group, slid into bankruptcy this year after suffering $3.2 billion in losses on energy futures and derivatives trades. Carlyle recently shut down its office in Warsaw as well as its Asian leveraged finance group, both of which were established last year.