Skip to comments.Trump sees bankruptcy as a competitive advantage
Posted on 04/10/2011 8:43:48 PM PDT by mnehring
Donald Trump's Atlantic City empire includes the Trump Taj Mahal. The casino company that bears Donald Trump's 24-karat name is heading for bankruptcy.
Trump sees bankruptcy as nothing more than a beneficial legal mechanism. There is no shame in bankruptcy, Trump says,"It doesn't matter - it's a modern-day thing, a legal mechanism," he told the Daily News.
Trump said he's "really happy" with the restructuring agreement that Trump Hotels and Casino Resorts has made with its largest group of bondholders, pavings the way for a $345 million investment from Credit Suisse First Boston.
The plan will be able to be carried out as the result of a pre-negotiated Chapter 11 bankruptcy proceeding.
That's right, $1.8 billion in debt will be cut by $544 million dollars, and the interest rate on the remianing portion of the debt will be reduced from about 12% to 7.875%. This will put Trump Hotels on an equal footing with competitors. Not only that, the deal gets a whopping $500 million line of credit for the renovating of the aging Atlantic City properties, build a new tower at Trump Taj Mahal and expand into the Las Vegas gambling scene.
"It becomes a whole different company," Trump was quoted as saying. Several analysts have said the deal is good enough medicine to heal the cash-starved Trump Hotels, which are known to have not turned a profit in their eight years as a public company, and have struggled to keep up prohibitive debt payments.
Sean Egan of Egan-Jones Ratings, a bond ratings firm, has said "This removes the sword of Damocles that was hanging over the company".
Trump insisted, as part of the restructuring efforts, to the investing of $55 million in cash of his own money. This was his idea, rather than a demand by Credit Suisse or the bondholders.
Trump will now be chairman instead of chief executive, and his ownership stake will be down to 25% from the original 56%. The star of "The Apprentice" will however, stay involved in Trump Hotels and be paid an annual salary of some $2 million. Apparently bankruptcy has it's advantages.
Trump will be overseeing development interests and projects, and deal with government officials in new markets the company enters.
"It was extremely important that Trump be incentivized to work with us," said excecutive vice president Scott Butera, who's in charge of the financial restructuring of the Atlantic City empire which includes the Trump Taj Mahal.
Donald John Trump, born June 14th, 1946, was the son of Fred Trump, a multi-billion dollar real estate mogul.
After attending the Wharton business school, Trump joined the family real estate business. A self-promoting and flamboyant dealmaker, he was able to secure loans with minimal collateral in the free-wheeling 1980s and created an empire in real estate, casinos, sports, and transportation.
By 1990, however, the effects of recession had left him unable to meet loan payments. Although he shored up his businesses with additional loans and postponed interest payments, mounting debt brought Trump to business bankruptcy and the brink of personal bankruptcy. Banks and bondholders lost hundreds of millions of dollars but opted to restructure his debt to avoid risking losing even more in a court fight.
By 1994, Trump had eliminated a huge portion of his $900 million personal debt and reduced substantially his nearly $3.5 billion in business debt. Forced to relinquish the Trump Shuttle (bought in 1989), he retained Trump Tower in New York City and control of his three casinos in Atlantic City.
Chase Manhattan, which lent Trump the money he needed to buy the West Side yards, his biggest Manhattan parcel, forced a sale of the parcel to Asian developers. According to former members of the Trump Organization, Trump did not retain any ownership of the site's real estate - the owners merely promised to give him about 30 percent of the profits once the site was completely developed or sold. Until that time, the owners kept Trump on to do what he did best: build. They gave him a modest construction fee and a management fee to oversee the development. They also allowed him to put his name on the buildings that eventually rose on the yards because his well-known moniker allowed them to charge a premium for their condos.
In 1995, he combined his casino holdings into the publicly held Trump Hotels & Casino Resorts. Wall Street drove its stock above $35 in 1996, but by 1998 it had fallen into single digits as the company remained profitless and struggled to pay just the interest on its nearly $2 billion in debt. Under such financial pressure, the properties were unable to make the improvements necessary for keeping up with their flashier competitors.
In 1999 Donald's father Fred Trump passed away. The same man who co-signed Donald's first business loans, also happened to be the man who enabled Donald to escape from the massive financial morass he had created over the decades. Unfortunately, creditors who got stuck with the past losses were not as fortunate, being forced to take catastrophic writeoffs and losses even up to 2004 when Trump refused to continue to back his casino.
Trump toyed with the idea of running for president on the Reform party ticket. Crippling debt payments forced his casinos into bankruptcy again in 2004, and Trump's stake in the company was greatly reduced when it emerged from bankruptcy in 2005. Widely known as simply the Donald, Trump stars in his own reality television show, which debuted in 2004.
Although Trump boasted he would build a bigger empire than his father, in the end, his father had built an empire large enough to accommodate even Donald's most lavish personal losses.
Donald J. Trump continues to be a successful business entrepreneur to this day.
The Forbes 400 lists his net worth at $2.7 billion, though Trump himself claims to be worth over $5 billion. However, on October 26 2005 the New York Times published an investigation into the history of Trump's net worth which suggested that the figures stated by Forbes have regularly been several times greater than his actual worth, even though they have been much lower than Trump's own personal estimates.
Thanks for posting an article from nearly 7 years ago.
I didn’t know history had an expiration date.
As it is, they took billions of our dollars instead, and they are headed over the cliff once again.
Sounds like a smart man, using loopholes to his advantage. Besides, I would think that he would run a country a little different than a struggling business that he takes over.
Before anyone thinks Trump is a fiscal Conservative, one should understand how he runs his businesses. He takes big risks but uses the government bankruptcy system to his advantage so he doesn’t face the consequence of massive debt that doesn’t reap a return.
America should do the same thing and kick the federal no reserve out of the country and go back to a gold standard.This funny money game is OVER and the government knows we can never pay in the long run.
I suppose you never fly on any airline either...since just about all of them (except maybe SWA) have filed Chapter 11 at one point or another.
I agree. The USA should declare it and start over.
So very true!
Sounds like he was also willing to put his personal stake in there...
I like both of them and have no problem with the article. Part of being smart is knowing how to take advantage of situations and opportunities. If someone doesn’t like how a person took advantage of a situation created by law, they need to take that up with the people who make laws, not the people who abide by them.
It’s not quite that easy. What do you think China would do?
That casino BK is old news. Trump is smart enough to get the bankers to lend him so much money that they cannot afford to let him go into BK. They always have to allow him to restructure on better terms. He is very shrewd.
I don’t want an airline executive to be Commander in Chief of the United States Armed Forces either.
Too many well-intentioned Freepers do this a lot.
They know just a little too little about subjects like:
-governing (NOT politicking)
And make comments that show the true lack of understanding as to the reality of how something works.
T-Bill soup? I care less what China does. Screw em.
The country could use some of that negotiation power!
Wow that’s an old article.
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