Private Equity News & Analysis

Carlyle-backed telecom company downgraded to Caa3

Carlyle and a group of local investors still own 100 percent of the equity of Hawaiian Telecom. A Carlyle-led consortium bought the company’s predecessor from Verizon Communications in 2005 for an enterprise value of $1.6bn.

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Moody’s Investors Service has downgraded the corporate family rating of Hawaiian Telecom Communications – a company backed by an affiliate of The Carlyle Group – from B3 to Caa2 and the company’s probability of default rating to Caa3 from Caa1.

Moody’s said that “the rating actions were prompted by the announcement by Hawaiian Telecom on 16 September 2008 that the company has engaged the services of Lazard & Freres as its financial advisor to assist in the evaluation of various balance sheet restructuring options and that the company plans to organise its bondholders to participate in the revised strategic plan”.

The ratings agency also said that Hawaiian Telecom’s ratings remain under review for further downgrade.

Washington DC-based Carlyle led a consortium of investors that purchased Verizon Hawaii from Verizon Communications in May 2005 for a transaction valued at $1.6 billion. Post-transaction, the company began operating under the name Hawaiian Telecom.

The deal included the transfer of Verizon’s Hawaii-based local telephone operations as well as its print directory, long distance and internet service provider operations.

In December 2007, Local Insight Media, a US directory publisher, purchased Hawaiian Telecom’s directory business for an undisclosed amount. However, Carlyle and a group of local investors still own 100 percent of the company.

Additionally, Carlyle's high yield fund holds a 1 percent stake in Hawaiian Telecom's $860 million senior secured tranche C term loan due 2014. Moody’s affirmed the rating for that loan below investment grade at Ba3. 

In addition to these investments, Hawaiian Telecom also has a management consulting agreement with Carlyle under which the company can access Carlyle resources in areas such as corporate management, financial transactions, product strategy, investment acquisitions and other matters that relate to the company’s business.

Year to date, Hawaii Telecom has paid Carlyle $800,000 in advisory fees under the terms of that agreement, according to regulatory filings.