NEW YORK, NOV. 13 -- Real estate developer Donald Trump took a giant step today toward placing the Taj Mahal Casino in bankruptcy proceedings, a move that could ultimately cost him ownership of his newest and biggest Atlantic City gambling palace.
Faced with a Thursday deadline for meeting a $47 million interest payment that he is expected to miss, Trump angrily broke off negotiations with bondholders that had been aimed at a financial bailout of the troubled property.
In a telephone interview early this evening, Trump said it was a "distinct possibility" that the Taj Mahal would soon be forced into a Chapter 11 bankruptcy filing, which would allow the casino to remain open while attorneys for all sides try to sort out its finances. However, it seemed unlikely that Trump, who now is the sole owner of the Taj Mahal, would manage to come out of bankruptcy proceedings with anything more than a minority stake, observers said.
The lawyer for the principal group of bondholders, who have the right to seize the casino if Trump defaults on the interest payment, threatened to seek to place the Taj Mahal in bankruptcy court as early as Friday unless Trump himself did so first. "Either Trump will go in voluntarily, or the bondholders will put him in involuntarily," said Robert M. Miller, a partner at the New York firm of Berlack, Israels & Liberman, who is counsel for the steering committee that represents the largest holders of the $675 million of junk bonds that helped finance construction of the $1 billion casino.
The Taj Mahal's problems represent a major new headache for Trump, who has been struggling since the spring to keep his vast real estate and casino empire afloat. An economic slump in the Northeast has severely hurt the developer, whose holdings include such New York landmarks as the Plaza Hotel and Trump Tower. He is also suffering from a gambling slowdown in Atlantic City, where he owns two other casinos.
If the Taj Mahal is placed in bankruptcy proceedings, observers said it would represent a significant new strain on Trump's finances, after he barely staved off the collapse of his holdings last summer by negotiating a $65 million emergency cash infusion from his banks. He also agreed then to sharply cut back spending on his lavish lifestyle and put up virtually all his assets as collateral.
Because Trump's finances are his private affair, however, it was difficult to know how quickly or severely a bankruptcy filing for the Taj Mahal would affect the rest of his empire. While Miller said the risk would be a kind of a "domino effect" and specifically predicted that the Trump Castle Casino would follow the Taj Mahal into bankruptcy court, Trump himself said that a bankruptcy filing for the Taj Mahal would have "no effect" on his other holdings because the Taj Mahal was "a totally separate corporation."
While it was conceivable that Trump might keep the Taj Mahal out of bankruptcy court -- by finding an outside investor or having a sudden change of heart and seeking a deal with the bondholders -- both the bondholders and outside observers thought that was unlikely. And the harsh language used by Trump and the bondholders suggested that there was plenty of bad feeling on both sides, which would make it hard to reach an agreement.
Trump said in the interview that he ended the talks because of the "totally unrealistic" demands of a committee of the largest holders of the risky but high yielding junk bonds that helped finance construction of the Taj Mahal. "We will not be able to make a deal with them," Trump said.
In a written statement issued later, Trump appeared to signal strongly that he expected the Taj Mahal to end up in bankruptcy proceedings. "Unfortunately, this case will be in court for many years to come," he said.
Technically, Trump has a 30-day grace period to meet the interest payments due to the bondholders before they can foreclose on the casino. But Miller said the bondholders could begin pressing for bankruptcy action after Thursday, if Trump fails to meet the payment deadline, as expected.
Because the bondholders have the right to be paid in full before Trump gets a penny, Miller predicted that Trump would lose his entire stake in the lavish casino that he opened amid much fanfare in April and billed as the "Eighth Wonder of the World."
"I believe that Mr. Trump is going to be the big loser in this situation," Miller said. "At the end of the day, I think it's pretty likely that he comes out with zip."