|By Suzette Parmley, The Philadelphia Inquirer|
Knight Ridder/Tribune Business News
Aug. 10, 2004 - Donald J. Trump and Credit Suisse First Boston reached agreement last night on a bankruptcy plan that would inject $400 million into his struggling Atlantic City casinos and that opens a line of credit for Trump to expand his global gambling empire into new jurisdictions, including Pennsylvania.
But Trump, the real estate mogul and reality-TV star, will have a diminished role in Atlantic City and companywide if the plan goes through. Trump will go from chief executive officer and biggest shareholder to chairman with about 25 percent ownership, down from 56 percent.
The restructuring is considered the first phase of a Chapter 11 bankruptcy filing, which Trump Hotels & Casino Resorts plans to make by the end of next month. The $400 million cash infusion will come from Credit Suisse First Boston's private equity fund, DLJ Merchant Banking Partners III L.P.
In an interview late last night Trump said "This deal "gives us the ability to finance upgrades at the Atlantic City properties and allows us to expand into new jusrisdictions which are important to us, including Las Vegas and Pennsylvania."
Scott C. Butera, who was hired by Trump to restructure its $1.8 billion debt, said the cash would go toward reducing the company's debt burden in Atlantic City and free money to go toward projects, such as adding new hotel towers, which many of Trump's competitors in Atlantic City have already done.
"We would love to have one of the casino licenses in Pennsylvania," Butera said. "We've been talking to several parties. But a lot is dependent on us exhibiting that we can finance a new venue. That's why this recapitalization has been so important."
Besides his Atlantic City casinos, Trump owns a riverboat casino in Gary, Ind., and just received a license in Orange County, Ind., to develop a second riverboat casino that is projected to open in 2006. He also manages Trump 29 Casino, an Indian casino near Palm Springs, Calif.
"We're very focused on Pennsylvania and our chances of getting into the expansion of gaming in Pennsylvania," Butera said.
A casino license in Pennsylvania will cost Trump $50 million.
An auditor's report filed with the Securities and Exchange Commission in March revealed Trump's three Atlantic City properties were in deep financial trouble and predicted dire consequences if alternatives were not pursued to plug the company's massive debt.
Analysts have predicted that anticipated consolidation among Trump's rivals in Atlantic City, and Pennsylvania's approval last month of up to 61,000 slot machines in 14 locations throughout the state, including Center City, will only make it harder for Trump to compete in Atlantic City.
Last month, Harrah's Entertainment Inc. announced plans to buy Caesars Entertainment Inc. -- making it the dominant player in Atlantic City with five properties to Trump's three, and the world's largest gambling company.
Trump's three casinos -- Trump Marina, Trump Plaza, and Trump Taj Mahal -- combined have seen a steady erosion in profitability. Last month, Trump reported a second-quarter net loss of $17.6 million, or 59 cents a share, compared with a loss of $10 million, or 46 cents a share, in the same period last year. Revenue slipped from $306.9 million to $293.2 million in the quarter ended June 30.
The company, which ended the quarter with just $81.1 million in cash on hand, is facing a $73 million payment in November on its $1.8 billion in debt.
Trump's cash crunch has left it unable to keep up with improvements made by rival casinos. The flashy Borgata Hotel Casino & Spa, which made its debut one year ago as the city's first Las Vegas-style mega-casino, has siphoned off a substantial portion of Trump's table game high rollers.
The Atlantic City casinos are a minuscule part of Trump's empire, as Trump insists, but integral to his expansion plans.
The company is having to get its financial house in order in Atlantic City before moving on with projects in other gambling jurisdictions, including Las Vegas, where Trump has plans to build a condominium tower, and in Indiana.
Butera, vice president and director of corporate and strategic development of Trump Hotels & Casino Resorts, said the plan would position the company to be a significant competitor in the global gaming industry.
A critical component under the terms is for Trump Hotels to obtain new financing of up to $500 million and "significant liquidity to support growth in additional gaming jurisdictions."
If the recapitalization plan is completed, the company expects to reduce its total debt by $544 million, or from $1.8 billion to $1.25 billion. It also expects to see a reduction in annual cash interest payments of about $110.2 million. It would consolidate three bonds with staggered maturities into a single bond that matures in 10 years.
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