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Hawaiian Telcom Communications has filed Chapter 11 bankruptcy, according to Honolulu-based Pacific Business News. The rare filing allows Hawaiian Telcom to reorganize its finances while continuing day-to-day operations. Hawaiian Telcom is one of only a handful of legacy telephone companies ever to declare bankruptcy and it may be the only company providing statewide land-line service to do so.

 

Tricom S.A., the second largest phone provider in the Dominican Republic, filed for bankruptcy protection in March. Similar to Hawaiian Telcom’s predicament, Tricom said it was weighed down by $700 million in debt taken on when it was bought in 2003.

 

The company says it has about $1 billion in debt, which includes $574.6 million in bank loans as well as about $500 million in bonds.

Hawaiian Telcom’s bankruptcy filing triggers a freeze, which generally prevents banks from collecting debts owed by the company, such as loan payments and payments to suppliers for goods or services received before the filing.

 

“We will continue to serve our customers, pay our associates, and pay for goods and services purchased after the filing date in the ordinary course of business,” the company said. “While operating the business, management will work with the company’s creditors to finalize a plan to restructure or reduce its debt.”

 

Hawaiian Telcom said its management team, led by president and CEO Eric Yeaman, will remain in place. The bankruptcy filing is unlikely to affect the company’s approximately 1,600 employees, 900 of which are unionized under the International Brothers of Electrical Workers Local Union 1357, Pacific Business News says.

 

The bankruptcy means Carlyle Group's private equity buyout is a bust. The obvious issue is what other private equity assets might now be in similar trouble.

 

Carlyle bought Hawaiian Telcom from Verizon (News - Alert) Communications in 2005 for $1.6 billion, putting up $425 million in equity and using debt to finance the rest. Carlyle stocked the board with a team of telecom experts, including William Kennard, former chairman of the Federal Communications Commission, and former Nextel Communications Inc. Chief Executive Daniel Akerson.

 

In the third quarter, Hawaiian Telcom's revenue declined 6.7 percent to $112.3 million, and its loss widened to $34.7 million, the company's third consecutive quarterly loss.