You could call it Trump: The Art of the (Bankruptcy Restructuring) Deal.
Donald Trump’s casino businesses, which have failed to share in his highly publicized successes in other realms in recent years, are being restructured under a bankruptcy protection plan that would strip The Donald of his majority stake.
Under the plan, announced late Monday, Trump Hotels & Casino Resorts plans to enter Chapter 11 bankruptcy next month, emerging within a year.
DLJ Merchant Banking Partners, an arm of Credit Suisse First Boston, and Trump would invest $400 million to help the company pay down its $1.8 billion in debt and cut interest payments in half.
Trump, the chairman, chief executive and largest shareholder, would see his stake in the company shrink from 56 percent to 25 percent, with Credit Suisse owning more than two-thirds of the company.
Trump himself would contribute nearly $71 million, $55 million of which would be in the form of a co-investment with Credit Suisse and $15.9 million of which would come from his Trump Casino Holdings notes. Trump would also give up trademark rights to his name and likeness for use in connection with casino operations.
The plan has been endorsed by some Trump bondholders, but others still must agree to it.
“The reality is that it’s bitter medicine: You don’t want to take it, and it’s not pleasant at the time, but in the end, you get healthy,” said Frank Fantini, publisher of the Gaming Morning Report, a casino industry newsletter.
“In the end, that’s what’s happening here. If you’re a shareholder, you’ll own a smaller share but it’ll be a profitable company, which is better than owning a piece of a non-profitable company,” Fantini said.
Trump Hotels stock was suspended from trading by the New York Stock Exchange on Tuesday.
Trump put a different spin on the deal.
“We’ve been working on it long and hard, and we’ve worked out a wonderful deal which will substantially reduce the debt of the company,” Trump said. He said the restructuring “reduced debt, lowered the (interest) rate and extended the term” of the debt.
He blamed problems in the gaming industry on “a lot of different things ... including competition and fuel prices.”
As to the bankruptcy’s impact on his wealth, Trump said: “The casinos are less than 2 percent of my net worth, but it’s important to me because we’ve had this company for a long time. It has been good to me. That’s why I wanted to straighten out the structure of the company.”
Anthony Sabino, an associate professor of business at Peter J. Tobin College of Business at St. John’s University in Jamaica, N.Y., said the bankruptcy filing was “not surprising give the circumstances in the gaming industry.”
He noted that casinos in both Las Vegas and Atlantic City have been undercut by the growth of gaming operations on Native American reservations and the weaker economy. In June, MGM Mirage agreed to purchase the Mandalay Resort Group for $4.8 billion in cash, followed a month later by a deal for Harrah’s Entertainment Inc. to buy Caesars Entertainment Inc. for about $5.2 billion, and further consolidation in the industry is expected.
Sabino termed the Trump casino businesses restructuring as “a prepackaged bankruptcy.”
“There’s already an agreement with creditors, and they’re only going to court to avail themselves of what the law allows them to do,” Sabino said. “He’s basically renegotiated his debt.”
And Sabino said he did not expect the casino problems to bring down the high-flying Trump.
“There’s no danger of him personally losing his fortune (because) his other enterprises are shielded because he’s segregated his holdings,” Sabino said. “He’s a master at deploying his assets in such a way that he spreads the risk and minimizes his exposure.”
He added, however, that the casino bankruptcy “must be an affront to his ego.”
The comeback artist
Trump emerged in the 1980s as New York’s hottest developers, attaching his name to buildings, Atlantic City casinos and best-selling books, notably “Trump: The Art of the Deal.” By the early 1990s, though, the headlines were more about financial troubles and his breakup with his first wife, Ivana.
This would be the second time that Trump casinos have been through bankruptcy. In 1992, the three casinos he then owned — the Taj Mahal, Castle and Plaza — ended up in Chapter 11, burdened by more than $1 billion in debt and hurt by the 1990-91 recession. Trump later regained control of the casinos.
But he climbed back from the brink of personal bankruptcy and chronicled his return to billionaire status in the 1997 book “Trump: The Art of the Comeback.”
Earlier this year, Trump conquered the world of television with the smash reality show “The Apprentice,” and his signature statement, “You’re fired,” became a national catch phrase. The new attention put him back on the best seller list this spring with “Trump: How to Get Rich.”
Last month, when his hotel-casino business reported a $17.6 million second-quarter loss, Trump blamed it on high gas prices and “other inflationary pressures” that have left his customers with less money to gamble at the beginning of the summer season.
The company’s $220 million yearly interest payments have been a drain, while a lack of cash has left Trump’s three New Jersey casinos vulnerable to new competition, such as the Borgata Hotel Casino & Spa, the $1.1 billion gaming hall that has been siphoning gamblers since it opened a year ago.
“When you put bankruptcy next to the Trump name, it sends up red flags, but it’s really just a refinancing of his company,” said Roger Gros, editor of Global Gaming Business magazine. “Ever since the Borgata opened and even before it, he hasn’t had the financial wherewithal to update his properties, and they’ve fallen behind the rest of the casinos in Atlantic City as a result.”
The bankruptcy plan is expected to cut Trump Hotels’ debt by $544 million to $1.25 billion, drop the average interest rate on debts from about 12 percent to less than 8 percent, and cut annual interest expenses by more than $110 million.
A majority of those holding $1.3 billion worth of bonds backed by Trump Taj Mahal and Trump Plaza have signed off on the plan, which calls for them to receive $282 million in cash, $851 million in new debt and $107 million in stock in the new company.
Those who own bonds backed by Trump Marina and Trump Indiana — which operates a riverboat casino in Gary, Ind. — have also been offered a combination of cash, stock and debt but have not agreed to the restructuring plan yet.
Trump Hotels, through its subsidiaries, owns and operates four properties under the Trump brand name. They include Trump Taj Mahal Casino Resort, Trump Plaza Hotel and Casino and Trump Marina Hotel Casino, all in Atlantic City; and Trump Casino Hotel, the riverboat in Gary, Ind. The company also manages Trump 29 Casino, a native American owned facility near Palm Springs, Calif.
Trump Hotels had $1.16 billion in 2003 revenues and has about 8,500 employees.