Hawaiian Telcom Inc.'s crushing debt load made it difficult for the company to compete with wireless and other more nimble competitors, prompting it to seek the protection of the federal bankruptcy court.

Washington, D.C.-based The Carlyle Group purchased the local phone company in 2005 for $1.6 billion, borrowing most of that money.

Since then, the company has lost more than 114,000 business and residential phone lines, or about 17 percent of its customer base, reducing the company's already razor-thin profit margin.

"When the deal was done, there was little room for error and the recent contraction just made that debt unsustainable," said Dimitri Triantafyllides, founder of Sixty Guilders Management, a Charlotte, N.C.-based hedge fund.

"The debt is too high."

Hawaiian Telcom filed for voluntary Chapter 11 reorganization yesterday in Delaware Bankruptcy Court after its attempts to restructure its debt fell through.

In its bankruptcy filing, the company listed $1.4 billion in assets and $1.3 billion in debts, Bloomberg News reported.

The company said its debt made it difficult to invest money in its core business of providing telephone service for more than 500,000 local residential and business customers.

According to documents filed with the Securities and Exchange Commission, Hawaiian Telcom's debt service payments this year had exceeded capital investment outlay.

For the first nine months this year, the company paid $68.1 million in interest payments. During the same period, it spent just $46.8 million for capital projects.

To be sure, Hawaiian Telcom's debt levels could have been even higher. In May, the state Public Utilities Commission rejected the company's request to increase its borrowings by another $60 million.

The company wanted the money to pay for construction, service improvements and other projects but the PUC ruled that adding debt to the company would be "akin to allowing a person to obtain a mortgage that the person cannot afford."

Mark Lutkowitz, telecommunications analyst and principal of Nashville, Tenn.-based Telecom Pragmatics Inc., faulted The Carlyle Group for not doing adequate due diligence when it purchased the local telephone company from Verizon Communications Inc.

Lutkowitz said Carlyle underestimated the amount of investment in Hawaiian Telcom's infrastructure needed to keep it competitive. Previous owners GTE Corp. and Verizon neglected to put money back into the system, allowing it to deteriorate.

At the same time, the high debt payments made it difficult for the company to make adequate investments in the company's infrastructure, he said.

"(The bankruptcy) is really extraordinary because you're talking about a monopoly that has a mandate to serve the state," Lutkowitz said.

Despite the negative headlines, hedge fund manager Triantafyllides said Hawaiian Telcom's decision to file for bankruptcy was a "necessary next step."

Reducing debt will allow the company to revive plans to offer Internet-based video service and Internet-based phone service, Triantafyllides said.

That, in turn, would allow the company to offer packages or bundles of services and products to compete with those offered by Oceanic Time Warner Cable and other providers.

"This will give you more breathing room to make the capital investments that you wish you made a few years ago," he said.