Hawaiian Telcom Inc. has warned that it may be forced to file for bankruptcy reorganization if it can't reduce its debt load.

In a 42-page filing with the Securities and Exchange Commission yesterday, the state's largest telephone company said it has been in talks with its bank lenders and bondholders to convert debt into stock.

"We have begun a restructuring process in an effort to make Hawaiian Telcom a stronger and more financially secure company as we continue to manage in this extremely challenging operating environment," Hawaiian Telcom chief executive Eric Yeaman said in a news release yesterday.

"Our dedication to providing our customers with the highest quality service remains as strong as ever and we do not anticipate any disruptions to our service during this restructuring process."

Hawaiian Telcom has about $1 billion in debt, which includes $574.5 million in bank loans and about $500 million in bonds. The debt helped finance Washington, D.C.-based The Carlyle Group's $1.6 billion takeover of the local phone company in 2005.

Earlier this month, Hawaiian Telcom postponed a $26 million interest payment due to bondholders. It instead opted for a 30-day grace period to give itself time to negotiate with creditors to restructure the debt.

That period ends Dec. 1.

In its filing with the SEC yesterday, Hawaiian Telcom said failure to reach an agreement by Dec. 1 could prompt the creditors to ask for their money back.

The "company may need to seek to modify the terms of its debt through court reorganization proceedings to allow the company, among other things, to reorganize its capital structure and restructure its business," the filing said.

In its filing, Hawaiian Telcom disclosed that its losses during the third quarter of 2008 grew to $34.7 million, from $29.5 million in the year-earlier period. The results included $22.5 million in interest expenses.

Minus the interest expenses, the operating loss for the third quarter was about $13.7 million.

The company "has concluded it has too much debt relative to the company's operating performance," Hawaiian Telcom said in its SEC filing.

A bankruptcy filing by the phone company would be the first by a major local utility and would be the state's largest since Hawaiian Airlines' Chapter 11 reorganization in 2003. Hawaiian Airlines at the time had more than 3,400 employees and annual sales of more than $600 million. It successfully emerged from bankruptcy in 2005.

Founded in 1883, Hawaiian Telcom has about 1,400 workers and annual operating revenues of about $500 million.

As of Sept. 30, the company had 298,527 residential customers, down 11.8 percent from the year-earlier period.

Earlier this month, Gov. Linda Lingle said her administration, the state Public Utilities Commission and the state consumer advocate were closely monitoring the situation.

Any restructuring plan would require the approval of the PUC.

The bankruptcy warning comes after the company earlier this year installed new management, which includes CEO Yeaman, formerly with Hawaiian Electric Co., and longtime First Hawaiian Bank CEO Walter Dods, as Hawaiian Telcom's chairman. The company also has hired Wall Street investment banking firm Lazard Freres.