Sunday, November 16, 2008

Hawaiian Telecom: Next Carlyle Group Affiliate to Crater?

Hawaiian Telecom may declare bankruptcy, according to company officials. The Carlyle Group purchased the company from Verizon in 2005. It took on $1 billion in debt to fund the deal, $574.5 million in bank loans and $550 million in floating rate bonds. Hawaiian Telecom delayed $26 million in bond interest payments earlier this month and got a Moody's downgrade to "D". The investment downgrade drives up interest expense in their floating rate bonds.

Other Carlyle affiliates and investment vehicles cratered in 2008. Carlyle Capital Corporation imploded first. Afterwards, Blue Wave Partners disappeared and SemGroup was taken over by creditors. Is Hawaiian Telecom next?

The Carlyle Group is known for their shrewdness. Co-founder David Rubenstein stressed Carlyle's current strategy of buying affiliate's debt back on the cheap. Is the bankruptcy threat part of generating returns for the private equity underwriter's distressed debt fund?

While one arm of the politically connected PEU takes, the other gives. Watch out for sleight of hand! Investors and taxpayers are subject to fleecing. Ask the good folks in Dallas, Texas. They're waiting on thousands of promised new jobs from Carlyle affiliate, Vought Aircraft Industries.

My guess is Vought would pull a Hawaiian Telecom, long before it met promised job increases for $35 million of Texas taxpayer funds. Is a threatened Vought bankruptcy next? How much affiliate debt can Carlyle buy back for pennies on the dollar? About $1.35 billion worth, or more with leverage? Stay tuned...