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Morgan Stanley and Beal Bank Believe Trump's Three Atlantic City
 Casinos a Good Bet; Providing $600 million to Refurbish

By Suzette Parmley, The Philadelphia Inquirer
Knight Ridder/Tribune Business News

Nov. 17, 2004 - Donald J. Trump's casino operations are expected to file for Chapter 11 bankruptcy as early as Monday, as part of an effort to upgrade his Atlantic City gaming properties and refinance $1.8 billion in debt.

It will be Trump's second attempt since August to turn around his casinos. The first ended in late September when the developer and reality TV star halted negotiations with Credit Suisse First Boston and began looking for new investors.

Under a new refinancing plan announced last month, Morgan Stanley will provide a $500 million line of credit to Trump to overhaul his casinos and expand into other jurisdictions, including Pennsylvania and Las Vegas. Another lender, Beal Bank, will provide $100 million in interim financing.

"The deal is working real well," said Trump, who has a penchant for speaking in superlatives, in a phone interview from New York. "We're really happy with it."

Trump said refurbishing his three Atlantic City casinos remains a top priority.

"We will start immediately to make them fabulous and to bring them up to speed," he said. "No question."

Trump has considered expanded his gambling empire for some time. The company also owns and manages casinos in Indiana and California, and is breaking ground on a luxury high-rise condominium in Las Vegas.

Trump has struggled with onerous interest payments for years, emanating from the construction of the $1 billion Trump Taj Mahal, his flagship Atlantic City casino. The Taj Mahal was financed primarily with junk bonds, and debt payments have prevented the company from making capital improvements on its properties to keep up with the competition such as the $1.1 billion Borgata Hotel Casino & Spa which opened in July 2003.

"We've gotten huge support from our bondholders across the board on all the major issues," said Scott C. Butera, president and chief operating officer of Trump Hotels & Casino Resorts, and Trump's lead negotiator on the plan.

If approved, the plan would lower the interest rate on its bonds to 8.5 percent and could save Trump Hotels about $98 million a year in interest payments, Butera said.

Trump Hotels' financial problems first came to light last spring when its auditors issued a warning in a filing with the Securities and Exchange Commission.

An agreement this summer with Credit Suisse would have given Trump Hotels $400 million in exchange for controlling rights to his casino company and his famous name. Talks fell apart in September. Late last month, the investment banking firm of Morgan Stanley stepped forward to partner with Trump.

In addition to the Trump Taj Mahal, Trump owns Trump Plaza Hotel and Casino and the Trump Marina Hotel Casino. Collectively, the three casinos, which employ over 8,000, have not turned a profit since 1995.

Trump Hotels incurred operating losses of $87 million in 2003. For the nine months ended Sept. 30, 2004, the company lost $91.5 million.

Barbara J. Cappaert, an analyst for KDP Investment Advisors, who has followed Trump for a decade, said the latest plan was not as sound as the first.

"We view this as slightly worse," Cappaert said yesterday. "In the original plan, there was more equity infusion by the lender, and reduced Trump's role, which would have given the company the ability to attract the talent to renovate the A.C. properties and to grow that market.

"Ultimately, you still have Mr. Trump in a very senior position," she said. "In the other plan, they paid for him to step aside."

But Andrew Zarnett, an analyst for Deutsche Bank Securities, said the increased popularity of the Trump brand was an asset.

"It is clear that the value of the Trump brand has greatly been enhanced over the past year and a half in great part to the success of The Apprentice television show," wrote Zarnett in an analysis from Oct. 22.

Under the current plan, bondholders would own between 63 percent and 65 percent of the company, and Morgan Stanley would be the lender. Trump would have his stake in the company reduced from 56 percent to 27 percent. He would remain chairman and CEO, but Morgan Stanley will control use of his name for the gambling operations.

One Trump bondholder who was close to the negotiations but did not want to be identified said he will get more equity and less cash under this plan. Still investors "recognized that they wanted to get a deal done," he said.

The bank loans would be secured by a first lien on all of the company's assets, meaning that if Trump Hotels were to collapse at some point in the future, the banks -- and not the bondholders -- would be first in line to recover their losses.

Shares of Trump Hotels, which trades over the counter, closed at 58 cents a share yesterday. It once traded at $67 a share during its peak in the 1990s.

Butera, formerly a Wall Street investment banker, said the plan will give the company the breathing room it needed to make improvements, like adding a new tower to the Taj Mahal, and buying new slot machines instead of leasing them.

"The next biggest thing is getting into new jurisdictions," Butera said. "The Philadelphia and Pittsburgh markets present a pretty good opportunity. We want to be a player in Pennsylvania."

But to do any of that, said the bondholder who asked not to be identified, the writing is on the casino walls in Atlantic City.

"Everybody's trying to compete with the Borgata, and you have to have a fresher product," he said.

-----To see more of The Philadelphia Inquirer, or to subscribe to the newspaper, go to http://www.philly.com.

(c) 2004, The Philadelphia Inquirer. Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com. CSR, MWD, DB, DBK,

 
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