Donald Trump's newest book has bombed out, his debts are worth more than his assets and his bank bailout is starting to leak like a rowboat with termites. But, by God, the man provides a great show.
Consider, if you will, the spectacle now taking place involving the Taj Mahal, Trump's disastrous $1.1 billion casino-hotel in Atlantic City. Trump's imminent default on the Taj's bonds -- there's a $47.25 million interest payment due Thursday that Trump has said he can't make -- is only the beginning.
Because, you see, "Taj!," a soap opera that could go on for months, is becoming one of the funniest spectacles in the annals of vulture capitalism. Vultures, of course, are beady-eyed speculators who make their living trying to tear off pieces of bankrupt or near-bankrupt companies -- or, occasionally, trying to tear off pieces of each other.
Trump is vulture food because his assets don't produce enough income to pay the interest and principal on their debts. Trump will have until mid-December, when a 30-day grace period runs out, before his Taj default becomes final. If the Taj goes Chapter 11, Trump will have violated his bank bailout agreement of this spring. He's already violated it by missing interest payments on his New York-Boston-Washington Trump Shuttle loan, and will likely violate it again by missing a bond payment due next month on the Trump Castle casino-hotel, another Atlantic City property. Whether any of Trump's banks wants to use this to undo the bailout remains to be seen.
To most of us, this is a sad spectacle. To a vulture, it's a banquet invitation. Trump has a big name; vultures, who are nothing if not macho, love trashing big names. And Trump is easy to torment, which makes baiting him lots of fun.
Trump's chief public tormentor is Wilbur Ross of Rothschild Inc., a veteran bankruptcy player. Ross represents a bondholder committee that's been talking with Trump for months. Not only has Ross taken the predictable hard line -- he's demanding that Trump forgive the $25 million debt the Taj owes him, turn over 85 percent of the Taj's stock to the bondholders and leave the bonds in place -- but he is driving Trump crazy by making remarks like, "It's too early for Christmas" and "We prefer to have the keys to the casino" when he's discussing Trump's proposal to the Taj's bondholders. Trump wanted them to eviscerate their securities in return for less than 20 percent of the Taj's stock, an offer that's even sillier than Ross's proposal to him.
But the funniest thing about Ross's remarks is that Trump is paying for them; he hired Ross to represent bondholders so Trump would have someone to negotiate with. Trump is paying Ross's firm $130,000 a month to have Ross torment him.
Ross, however, may be the least of Trump's problems. Trump has to deal with First Executive Corp., a Los Angeles-based insurance holding company that owns about $100 million of Taj paper. Although First Exec is part of Ross's committee, it has hired its own adviser. First Exec, which has suffered huge losses in its junk portfolio, takes a hard line in talks like these.
Then there's Carl Icahn, who's no walk in the park, either. Insiders, talking off the record, say that Icahn has $100 million of Taj bonds. I couldn't confirm it, and I couldn't get Icahn on the phone. Icahn can't be a happy camper because he's not the happy camper type and because he's taken a huge bath on his Taj bonds. My guess is that he paid 40 to 45 cents on the dollar for his Taj holdings, which are trading in the low 30s.
Ross, Icahn, First Exec and various bit players are threatening to put the Taj into Chapter 11 if Trump doesn't give them what they want, whatever that is. But it would appear that Trump has to take the Taj into Chapter 11 to get any sort of deal done because of the way the contract between himself and the Taj bondholders is written.
Here's why. To make the Taj financially viable, bondholders have to reduce their bonds' 14 percent interest, their $675 million face value, or both. Trump would have to turn over a big piece of his Taj stock to make this palatable. If such a deal were done, Trump -- or, rather, the banks to which he has pledged his Taj stock -- would be better off than they are now because 20 percent of a viable casino is worth more than 100 percent of a busted one.
But under the contract with bondholders, Trump can't reduce the bonds' interest rate or face value without the consent of every single affected bondholder -- which is impossible to get. The only way to deal with this is to go into Chapter 11, get a reorganization plan approved and have the bankruptcy judge change the bonds' terms as part of the reorganization.
If Trump is clever and lucky, he could use Chapter 11 to stiff the bondholders and retain control of the casino by getting an outside investor to put up money to pay for a bankruptcy reorganization. For reasons too complicated to discuss, Trump might even be able to use Chapter 11 to get Ross out of the case and keep him out.
So Thursday's episode, "Default," will be only the start of the "Taj!" show. Stay tuned. There's plenty more to come.
Last week, I wrote that I couldn't understand why Citicorp, which said it could easily borrow the money, didn't redeem the auction-rate preferred stock that was costing a fortune and generating bad publicity. A few days after the column appeared, Citicorp announced that it would redeem some of the stock.