NEW YORK, JUNE 11 -- Bankers who have lent Donald J. Trump the $2 billion he needed to build what has become a beleaguered empire of casinos, airplanes, real estate and hotels have tentatively agreed to lend him $60 million more -- and postpone interest payments that he owes -- in the hope that Trump can outgrow his current financial difficulties, bankers confirmed today.
In return for the extra breathing room, Trump has agreed to pledge the Trump Tower and others of his prized projects as collateral, according to one banker.
The bankers' strategy is to give Trump enough cash to cover operating losses that have drained Trump's cash reserves and threatened to make it impossible for him to meet debt payments. Some $26 million in interest and other payments is due Friday on a portion of the $1 billion in junk bonds he issued to build his casinos.
Trump's four biggest bankers -- Citicorp, Bankers Trust New York Corp., Chase Manhattan Corp. and Manufacturers Hanover Corp. -- have agreed to the general outline of the deal, as has Trump, bankers confirmed.
Making the deal final requires the approval of a dozen banks around the country and abroad that purchased portions of the $2 billion in loans from the New York banks. Their approval is expected, banking analysts said.
The banks hope the new cash will ease the financial pressure that could have forced Trump to seek protection of the federal bankruptcy court for one or more of his operations or forced him to sell properties at fire-sale prices, according to sources familiar with the negotiations. The bankers are gambling, in effect, that in the coming months interest rates will fall, real estate prices will rise and the sluggish casino business will rebound -- events that would solve Trump's problems and ensure the banks aren't throwing good money after bad.
Gary E. Hindes, chairman of The Delaware Bay Company, a brokerage firm that specializes in distressed securities such as those of Trump's casinos, said that Trump's reported deal with the banks "takes care of a short-term problem. It remains to be seen whether it'll work in the long run. For the short term, he's over the hump."
A senior junk bond specialist at a leading investment banking firm said that what produced the agreement, which was first published in today's Wall Street Journal, was Trump's pledge of more collateral.
"Banks will always lend more money if they get more collateral," he said. "It leaves Trump a much less wealthy man on a net basis. It means the banks control his destiny. They're clearly going to write lots of tough covenants into this. If this guy thinks he's going to fly around in his jet and buy yachts and that sort of thing, he can just forget it. They'll just pull the plug."
At the heart of the deal is a decision by the four major banks to "pool the risk" each holds in Trump's empire. If each of the four banks has lent Trump money on a major project, for example, the terms of the tentative deal would leave each bank holding a proportionate share in each project.
The idea, bankers said yesterday, is to give each of the major lenders exposure to the same risks and equal claim to more valuable assets in case of a default.
Without such a pooling, a bank holding loans to Trump's cash-strapped businesses such as the Boston-New York-Washington shuttle or the new Taj Mahal casino might be tempted to force Trump to sell the asset and stem the losses. That might prompt Trump to seek bankruptcy protection, which in turn could result in bankruptcy creditors going after his healthy holdings.
To head off the possibility of such a chain reaction, the bankers wanted to make it in each creditor's interest to allow Trump time to work out his problems.