Hawaiian Telcom Inc. took a major step toward exiting bankruptcy after a federal judge approved the company's $460 million reorganization plan.

U.S. Bankruptcy Judge Lloyd King yesterday confirmed the management-led turnaround, which slashes more than $800 million of the company's debt.

King picked the stand-alone plan ahead of a competing, $400 million offer by rural telecommunications provider Sandwich Isles Communications Inc.

"I'm satisfied the plan is fair and is equitable and there is no unfair discrimination," King said. "It is essential to move things on."

The reorganization requires the approval of the state Public Utilities Commission.

Eric Yeaman, Hawaiian Telcom's president and CEO, said the plan's confirmation will make Hawaiian Telcom more flexible and better able to compete in the fast-changing telecommunications industry.

"We are extremely pleased with the court's decision and look forward to working through the regulatory process so our confirmed plan can become effective and the company can emerge from bankruptcy a stronger and more financially secure company," he said.

Founded in 1883, Hawaiian Telcom is the state's largest and oldest telecommunications company.

The company filed for Chapter 11 bankruptcy on Dec. 1 due to its heavy debt load and the loss of thousands of customers to wireless and other services.

Under the reorganization plan, Hawaiian Telcom will convert more than $500 million of bank debt into $160 million in new stock.

The company's biggest shareholder, Washington, D.C.-based Carlyle Group, which purchased Hawaiian Telcom in 2005 for $1.6 billion, will see its holdings all but wiped out.

The plan calls for no changes to employees' collective bargaining agreement and their pensions.

"We've always supported the plan," said Scot Long, business manager for the 1,200-member International Brotherhood of Electrical Workers Local 1357.

"The longer we are in Chapter 11, no one benefits."

During yesterday's hearing, King said he was concerned about the costs of the bankruptcy proceedings.

Through September, the company has spent more than $22 million in reorganization costs, which include fees for attorneys, investment bankers and other consultants.

Hawaiian Telcom officials also have said that the company has lost revenues and customers since seeking bankruptcy protection nearly a year ago.

King's ruling capped a four-day trial over a legal dispute between the company and its bondholders.

Under the reorganization plan, the bondholders, who invested about $500 million in the 2005 deal, will get about $10.6 million and the rights to acquire warrants in the new company.

Bondholders said the plan understates the company's value by more than $200 million and that they are entitled to nearly $140 million.

But in approving the reorganization plan, King said he was unswayed by the bondholders' claims.

"Nothing comes close to the valuations suggested," he said.