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Trump Given Last-Minute Bridge Loan : Bailout: The $20 million in new funds will give the developer and his real estate and gambling empire breathing room. But some question whether he will survive in the long run.

June 27, 1990|TOM FURLONG | TIMES STAFF WRITER

Developer Donald J. Trump narrowly sidestepped financial disaster Tuesday when he received a last-minute loan of $20 million that enabled him to make overdue payments on the bonds for Trump Castle, one of his three casino-hotels in Atlantic City, N.J.

The payment was made less than seven hours before the midnight deadline and allowed Trump to avoid a formal default that could have triggered the collapse of his entire real estate and gambling empire.

One official close to Trump said a default on the Trump Castle bonds could have set off defaults on his other bank loans and that could have sparked defaults on the bonds of his other two casinos, Trump Plaza and Taj Mahal.

"He has dodged a bullet," the official said, "a major bullet."

Trump confirmed the loan in a short statement, adding in a brief telephone interview: "I feel great. This is a great day for us."

According to a high official in the New York-based Trump Organization, the $20-million loan is the first phase of a $65-million loan package that has been agreed to now by all of Trump's bankers. Trump has dozens of lenders who span the globe from New York to Frankfurt to Tokyo.

In his statement, Trump said: "I want to thank all of my banks and lending institutions for making this complex and highly technical agreement possible. I have gained a great and deep respect for the banking system and those who make it work."

The payments on the Trump Castle bonds were made with the $20-million loan, which covered the interest payments, while Trump took care of the remaining principal payments, according to a spokesman for First Fidelity Bank in New Jersey, trustee for the bonds. Trump owed a total of $42.6 million in principal and interest.

Seven East Coast banks lent Trump the $20 million, with the majority coming from Citibank and Bankers Trust in New York. The money amounts to a 30-day "bridge loan" being secured by Trump's personal assets, bankers said.

The total loan package, which will provide Trump with another $45 million, is expected to be hammered out in the next few weeks and force Trump to hire a chief financial officer for his organization and make major cuts in his lavish lifestyle.

According to several news reports, Trump will be forced to live on $450,000 a month for the rest of the year, $375,000 a month in 1991 and $300,000 in 1992. Trump owns several homes, a fleet of airplanes and a $29-million yacht.

The loan agreement is expected to give Trump breathing room to sell off some of his assets over the next several months. The lending agreement also calls for a restructuring of about $850 million in debt at lower interest rates and longer terms of maturity ranging up to five years.

Trump has about $2 billion in bank debt and another $1.3 billion in debt on his publicly traded bonds. "I don't owe anybody anything," Trump bragged Tuesday. "It has all been paid."

Trump's next major test may come in November when he must make another semi-annual interest payment on the bonds for the Taj Mahal, which opened in April and cost more than $1 billion to build. Trump raised $675 million at an interest rate of 14% to finish construction of the casino-hotel.

"The Taj is a killer," noted one East Coast real estate expert, pointing out that the giant casino hotel is going to have great difficulty breaking even during the off season. Atlantic City's primary tourist season runs from May through September.

Tuesday's events ended several weeks of marathon negotiations between Trump and his lenders over how he was going to restructure his finances. The talks came down to the 11th hour after two of his European lenders balked at a final agreement.

Once the embodiment of 1980s nouveau riche, the 44-year-old Trump in recent weeks became an object lesson in the hazards of debt financing. His real estate and gambling empire took more than 10 years to build but nearly unraveled in less than 10 weeks.

Though he owns quality properties, Trump was hurt because he borrowed too much and, in some cases, paid too much for his assets, financial experts said. In the end, like any overburdened property owner, he simply did not have the cash to make the interest payments on his debts.

His problems came to a head after he was unable to sell or refinance his properties in the depressed markets of Manhattan and Atlantic City, where most of his wealth is concentrated. Initial news reports in April that questioned Trump's financial condition turned into a torrent of publicity in May and June about his worsening problems.

Trump was pictured as beseeching his bankers for more money, an image that had the ring of truth when Trump skipped the $42.6-million payment on the Trump Castle bonds on June 15.

Trump sounded bitter about the publicity, though, saying he was being unfairly singled out when real estate developers all over the country are having problems making interest payments on their loans.

"To me, this was a media-driven event," he said, referring to the marathon negotiations. "It has been disgraceful."

Though Trump has survived in the short term, he faces the prospect of shedding his real estate properties and other assets in a depressed market during the next few months. Many real estate experts on the East Coast question whether he is going to survive in the long run.

Trump's assets range from the casino-hotels in Atlantic City to elegant commercial buildings in Manhattan to abandoned railroad yards on the Upper West Side of Manhattan.

One official who works for Trump said the developer might be wise to unload Trump Plaza, which he said should sell for at least $500 million and generate a profit of $70 million or more. The casino-hotel has been one of the most profitable in Atlantic City in recent years.

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