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Donald Trump Drives Trump Hotels and Casinos into Second Bankruptcy,
Bondholders Get Haircut, Shareholders Almost Wiped Out;
Trump to Collect a $2 million Yearly Salary
The Record, Hackensack, N.J.
Knight Ridder/Tribune Business News

Nov. 23, 2004 - "I'm the biggest developer in New York! I have the No. 1 show on television! The Trump brand is so hot, I want to make the casino company as hot as everything else is!"

That was Donald J. Trump on the phone Monday, talking about how a Chapter 11 bankruptcy filing was a good move for his Atlantic City-based casinos. So good, in fact, that if a federal judge approves, Trump will stay on as chairman of Trump Hotels & Casino Resorts, hold most of the stock and collect a $2 million yearly salary.

The paperwork, filed Sunday in U.S. Bankruptcy Court in Camden, cited $1.8 billion in debt and losses to competitors as reason to restructure. It built on a plan first disclosed in August after negotiations with bondholders who had the power to take over the company. But that agreement, with Credit Suisse First Boston, never came to fruition, reportedly because of bickering among bondholders who did not want to see a smaller return on their investment.

In October, Trump announced new terms: The bondholders would accept a $74 million payout, take control of nearly $400 million in stock and refinance $1.25 billion in debt at an 8.5 percent interest rate over 10 years.

The latest round of filings shows the company would get a $100 million loan from Beal Bank, a wholesale institution based in Texas, to pay salaries and operating costs, and would have access to a $500 million line of credit from Morgan Stanley. In all, the company expects to shave $100 million in annual interest payments and ultimately reduce its debt by $500 million. The idea is to have enough cash on hand to renovate Trump Marina, Trump Taj Mahal and Trump Plaza in Atlantic City, along with a riverboat casino in Indiana.

Some companies that file for protection from creditors under Chapter 11 of the federal bankruptcy code -- Huffman Koos did so recently -- immediately make plans to sell their assets and go out of business. That is not the case with the Trump casinos, which are not only looking to stay open, but also planning to add hotel rooms, renovate their gambling floors and make other improvements in an attempt to draw new visitors.

Trump's stake in the company would drop to 27 percent from 56 percent, and he would have to put up $73 million of his own money. Existing shareholders would have a less than 1 percent interest.

Barbara Cappaert, a fixed-income analyst with KDP Investment Advisors Inc., said that earlier bankruptcy-restructuring proposals would have left Trump with little control of the casinos. That might have been better for the company, she said, given Trump's track record in Atlantic City.

"There were a lot of missed opportunities," she said.

Trump's best-selling books, his marriages and divorces and his tireless self-promotion have made him a part of American popular culture for 20 years. In the past year, he has ridden a wave of unprecedented celebrity as the star of "The Apprentice," an NBC-TV series in which job applicants compete for a position in one of his companies. Losers are summarily dismissed with abrupt words from Trump himself: "You're fired."

In its September edition, Forbes magazine estimated his wealth at $2.6 billion, largely earned in real estate.

Trump pointed out Monday that restructuring isn't uncommon in the casino industry. In Atlantic City, Sands Hotel & Casino filed for bankruptcy protection in 1997, and The Claridge Casino Hotel filed in August 1999. Trump's casino company filed for bankruptcy once before, in the early 1990s, and he closed his World's Fair property in 1999.

"'Bankruptcy' is a legal terminology that is very important to getting the deal completed," he said. "This is, in our opinion, a great company."

The court should rule in 90 to 120 days, said Scott Butera, executive vice president of Trump Hotels & Casino Resorts. In the meantime, he said, gamblers and casino employees will see no changes.

"It should be a completely seamless process," Butera said. "We have a plan to pay everyone."

The company -- the only one of Trump's that is publicly traded -- has been losing money for six years.

Its stock, whose high was $34 in June 1996, closed at 56 cents Monday.

Milton Leontiades, dean of the Rutgers School of Business in Camden, said getting bondholders to accept less on their investment is "a tactic used over and over again by Trump and seemingly quite successfully."

"One thing that amazes me is that so many banks and other lenders are so willing to give him more money," said Leontiades, who follows the gaming industry.

"It's like lending to an undeveloped, Third World country. You know the risk is extremely high."

That risk is why Trump must pay such high interest rates, Leontiades said.

Leontiades and other observers said that the casinos need to be updated.

"He obviously has to put some money into the casinos to be competitive or else sell the casinos to someone else," Leontiades said.

Marvin Roffman, a Philadelphia money manager who has followed the Trump casinos for years, called the filing "a very good deal for Donald."

"The bondholders are taking a haircut, and the shareholders were almost wiped out, but Trump is going to maintain his position," Roffman said. "What it stopped was a nasty situation where the bondholders could have taken control and kicked everybody out."

Roffman wasn't exactly a disinterested party.

He was fired by Janney Montgomery Scott in 1990 after he questioned the financial prospects for Trump's Taj Mahal. His comments Monday showed he continues to be a critic.

"The company is not out of the woods, because they're going to have to borrow a substantial amount of money to get themselves right, if they can even do it," he said. "They used to boast that they were No. 1. Well, they're not No. 1."

By Kathleen Lynn and Elise Young

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