Bankruptcy Tutor
By TIMOTHY L. O'BRIEN and ERIC DASH
rump Hotels and Casino Resorts Inc., the struggling holding company that controls Donald J. Trump's casinos, has reached a preliminary agreement with its investors to restructure $1.8 billion in debt, fending off a possible bankruptcy filing and leaving Mr. Trump as the company's chairman and chief executive.
The restructuring - coming less than two weeks before the due date of a hefty bond payment that many analysts suspected the company might have had difficulty making - is the latest step in the dizzying round of financial deal making that the company has engaged in this year.
According to two people directly involved in the restructuring, which is expected to be announced publicly as early as today, Mr. Trump's stake in the company will be reduced from 56 percent of the shares to about 27 percent. Bondholders will be swapping about $575 million in debt in return for an equity stake that will leave them in control of about 63 percent to 65 percent of the company's shares.
The restructuring is expected to be completed no later than February. One person involved in the deal said that Mr. Trump would invest $55 million of his own cash and exchange $16.4 million in Trump Hotels debt that he controls to maintain an equity stake in the company. This person also said it was possible that Mr. Trump might resign as chief executive in coming months, but that for now the company's investors valued his marketing prowess and wished to keep him aboard.
By shrinking the size of the company's debt, the transaction is expected to save Trump Hotels about $100 million in annual interest payments, giving the company much-needed financial breathing room. Nonetheless, it will still have to pay off hundreds of millions of dollars in overall debt coming due in 2006.
Trump Hotels, which largely operates in Atlantic City, has had difficulty maintaining its competitive position there because it lacks the money to refurbish its properties and expand the number of rooms in its hotels. A recent unsuccessful restructuring bid backed by Credit Suisse First Boston, the investment bank, would have injected as much as $400 million in fresh financing to help overhaul the properties.
Investors and others involved in the deal said that the Credit Suisse transaction fell apart because bondholders balked at what they believed were onerous financing terms imposed by the investment bank.
While in the new deal bondholders will not benefit from the outside expertise the bank would have brought to a company that has suffered from financial mismanagement, three people involved in the current negotiations said the bondholders believed that their increased equity stake offered the promise of a return in the future.
Two people involved in the talks said in interviews last night that Trump Hotels was negotiating with several banks for a $500 million line of credit that would be used to finance an overhaul of the casinos and add new hotel rooms.
The bank loans would be secured by a first lien on all of the company's assets, meaning that if Trump Hotels collapses in the future, the banks, and not the bondholders, would be first in line to recover their losses.
But bondholders, who have had a seesaw relationship with Mr. Trump over the years, are apparently willing to roll the dice in the current round of negotiations with him, betting that their equity stake will remain sound.
One person involved in the recent talks between Mr. Trump and his investors described them as a "lovefest."
Trump Hotels has not been profitable for the last nine years, and its shares, which once traded as high as $34 on the New York Stock Exchange, now sell over the counter for 52 cents.
rump Hotels and Casino Resorts Inc., the struggling holding company that controls Donald J. Trump's casinos, has reached a preliminary agreement with its investors to restructure $1.8 billion in debt, fending off a possible bankruptcy filing and leaving Mr. Trump as the company's chairman and chief executive.
The restructuring - coming less than two weeks before the due date of a hefty bond payment that many analysts suspected the company might have had difficulty making - is the latest step in the dizzying round of financial deal making that the company has engaged in this year.
According to two people directly involved in the restructuring, which is expected to be announced publicly as early as today, Mr. Trump's stake in the company will be reduced from 56 percent of the shares to about 27 percent. Bondholders will be swapping about $575 million in debt in return for an equity stake that will leave them in control of about 63 percent to 65 percent of the company's shares.
The restructuring is expected to be completed no later than February. One person involved in the deal said that Mr. Trump would invest $55 million of his own cash and exchange $16.4 million in Trump Hotels debt that he controls to maintain an equity stake in the company. This person also said it was possible that Mr. Trump might resign as chief executive in coming months, but that for now the company's investors valued his marketing prowess and wished to keep him aboard.
By shrinking the size of the company's debt, the transaction is expected to save Trump Hotels about $100 million in annual interest payments, giving the company much-needed financial breathing room. Nonetheless, it will still have to pay off hundreds of millions of dollars in overall debt coming due in 2006.
Trump Hotels, which largely operates in Atlantic City, has had difficulty maintaining its competitive position there because it lacks the money to refurbish its properties and expand the number of rooms in its hotels. A recent unsuccessful restructuring bid backed by Credit Suisse First Boston, the investment bank, would have injected as much as $400 million in fresh financing to help overhaul the properties.
Investors and others involved in the deal said that the Credit Suisse transaction fell apart because bondholders balked at what they believed were onerous financing terms imposed by the investment bank.
While in the new deal bondholders will not benefit from the outside expertise the bank would have brought to a company that has suffered from financial mismanagement, three people involved in the current negotiations said the bondholders believed that their increased equity stake offered the promise of a return in the future.
Two people involved in the talks said in interviews last night that Trump Hotels was negotiating with several banks for a $500 million line of credit that would be used to finance an overhaul of the casinos and add new hotel rooms.
The bank loans would be secured by a first lien on all of the company's assets, meaning that if Trump Hotels collapses in the future, the banks, and not the bondholders, would be first in line to recover their losses.
But bondholders, who have had a seesaw relationship with Mr. Trump over the years, are apparently willing to roll the dice in the current round of negotiations with him, betting that their equity stake will remain sound.
One person involved in the recent talks between Mr. Trump and his investors described them as a "lovefest."
Trump Hotels has not been profitable for the last nine years, and its shares, which once traded as high as $34 on the New York Stock Exchange, now sell over the counter for 52 cents.
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