Hawaiian Telcom draws all available revolver borrowings, looks to access additional borrowing capacity

By Jennifer Lanning Drey

Portland, Ore., May 15 - Hawaiian Telcom Communications Inc. increased borrowings under its revolving credit facility to $89.8 million plus letters of credit during the first quarter, eliminating any further borrowing capacity under the facility without further approvals, Robert Reich, chief financial officer of Hawaiian Telcom, said Thursday during the company's first-quarter earnings conference call.

The company made the draw on the revolving credit facility "in response to uncertain conditions in financial markets," it said in its 10-Q filed with the Securities in Exchange Commission.

The March draw followed $261 million of debt repayments made earlier in the quarter, consisting of a $211 million repayment of term loan C debt and $50 million repayment to the revolving credit facility. The repayments were made using the remaining proceeds from the sale of the company's directories publishing segment.

During the first quarter, Hawaiian Telcom requested approval from the Hawaiian Public Utilities Commission (HPUC) to gain full access to the $150 million committed under its revolver. The approval is required before the company can borrow above $90 million under the facility.

"Given the current financial markets and given what we continue to see as the dislocation in some of these markets, we believe that securing the right to increase the revolver is an asset that the company should preserve," Stephen F. Cooper, chief executive officer of Hawaiian Telcom, said during the company's quarterly earnings call held Thursday.

On May 13, Hawaii's consumer advocate filed a statement of position recommending that the HPUC deny Hawaiian Telcom's request for authorization to make additional draws under the revolver given the company's current debt levels.

Hawaiian Telcom had long-term debt of $1.07 billion at March 31.

According to Cooper, even if access to the additional $60 million were to be approved by the HPUC, Hawaiian Telcom would only be able to draw a maximum of about $40 million due to the interplay between its bank and bond debt.

The CEO also stressed that Hawaiian Telcom is only seeking the right to access the additional borrowings, not specifically to make a draw.

Need to resolve operational issues

During the question-and-answer portion of Thursday's call, Hawaiian Telcom's management was asked about the possibility of a balance sheet restructuring, which Reich said would be secondary to the resolution of operational issues.

After acknowledging concerns about the company's debt levels, he said. "Once the operational issues have been resolved and the normalized cash flow can be relied upon, if at that time there is a disconnect between the operational side of the business and the capital servicing requirements, then at that time we'll have to evaluate if anything should be done about the balance sheet."

Hawaiian Telcom ended the first quarter with cash and cash equivalents of $93 million, compared to a balance of $8.8 million at the end of the fourth quarter.

Hawaiian Telcom reported first-quarter consolidated revenue of $112.4 million, a 10.4% drop below the prior year's first quarter, driven by a decline in switch access lines.

Adjusted EBITDA for the quarter was $32.9 million, compared with $45.5 million in the 2007 period.

Hawaiian Telcom is a Honolulu-based telecommunications provider.

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