Because of an editing error, an article yesterday about Donald Trump's finances overstated the extent of recent layoffs at the Trump Shuttle. Between 50 and 100 layoffs have been announced. The name of New York's Plaza Hotel also was misstated. (Published 6/6/90)
NEW YORK, JUNE 4 -- Donald J. Trump, the real estate mogul whose name has become a synonym for flamboyant wealth and self-promotion, is now caught in a financial vise that could force him to dismantle his empire by selling assets to repay the money he owes to junk bond holders and big New York banks, according to bankers and Wall Street analysts.
In response to news reports that Trump spent much of last week in serious negotiations with his principal bank lenders in an effort to find a solution to his cash crunch, prices of Trump bonds plunged by as much as 15 percent today on the open market.
The bonds were floated in recent years to finance construction of his three hotel-casinos in Atlantic City, which, according to some analysts, are not generating sufficient revenue to pay the interest on those bonds. A number of contractors working on the lavish new Taj Mahal casino allege that Trump is $50 million behind in his payments to them.
Several of Trump's major borrowings fall due June 15, which is shaping up as a test day for his financial condition, and a failure to make good on some of these obligations could force Trump to file for protection of the federal bankruptcy court for one or more of his projects.
"June 15 obviously is a key day," said an analyst who follows Trump junk bonds for a major Wall Street investment banking firm.
A banker at one of the major banks lending to Trump disputed reports the real estate developer was on the brink of a full-scale financial meltdown. "He's stretched pretty thin, but he's not yet close to bankruptcy," the banker said.
Trump has fallen victim to a slumping real estate market, rapid expansion and his own strong appetite for taking on debt to finance acquisitions of glamourous new properties, which include the casinos, the former Eastern Air Lines Shuttle and Manhattan's Trump Tower and Park Plaza Hotel.
Although rumblings of his financial difficulties have circulated for months in the financial and real estate communities, Trump had been eager to return reporters' calls and appear on television talk shows to dismiss them as malicious gossip. But today, the usually voluble Trump was uncharacteristically silent. Calls to the Trump Organization were referred to Trump's personal publicist, Howard Rubenstein, who issued a four-sentence statement but did not return phone calls.
The statement confirmed that Trump was holding meetings with "major banks," and said, "We are confident we will arrive at a mutually beneficial solution." Bankers familiar with the talks confirmed details of the negotiations carried in today's Wall Street Journal, which said that bankers and lawyers have been meeting day and night with Trump and his financial advisers for the past two weeks on the 26th floor of Trump Tower.
With all New York talking about his plight today, Trump took time out to be in Las Vegas today, touting his latest book at the annual American Booksellers Association convention. Its title: "Trump, Surviving at the Top." Random House is planning to print 500,000 copies.
According to bankers lending to Trump, Citicorp has the largest exposure of Trump's four major creditors, Manufacturers Hanover Corp. the least and Bankers Trust Corp. and Chase Manhattan Corp. falling in between.
Trump has been trying since April to raise cash by seeking to sell some of his properties, including the Trump Shuttle, his 27 percent holding in the New York department store Alexander's and his Trump Princess yacht.
Until today, however, Trump has always insisted that he was considering such sales because he wanted the money to make future investments, not because he needed the cash to pay bills that were about to fall due.
At the shuttle, Trump has already laid off 450 employees, cut some amenities at the Boston, New York and Washington terminals, and is considering the possibility of cutting back its hourly flight schedule on weekends.
The Trump Castle is obliged to make payments of about $26 million on June 15 to meet obligations to holders of bonds floated in 1985 to finance construction of the Atlantic City casino.
On the same day, Trump is due to repay an unknown amount of money that remains unpaid from a personal loan to him that originally totaled $70 million and that financed his purchase of equity in the casino.
Trump's dilemma is that some of his bankers are reluctant to continue to extend credit to his organization, and thus enable it to make the payments due this month to bondholders, unless he can demonstrate convincingly that he will be able to meet future payments on his bank loans as well.
This struggle between bankers and bondholders over the right to be repaid was at the heart of today's plunge in prices for junk bonds of the Trump Plaza and Trump Taj Mahal casinos as well as for those of the Trump Castle.
"Holders of his public debt have lost confidence in his ability to pay his interest bills on time. They are concerned that his bank lenders may be getting first claim on his assets, and that there may not be as many assets as was thought," said James D. Grant, editor of Grant's Interest Rate Observer, a New York-based bond market newsletter.
Grant, a longtime critic of Trump's, wrote a leading article several months ago predicting that Trump would soon face difficulties servicing his debts.
"What the market is saying is that his name isn't worth what the market thought," a senior Wall Street executive, who follows the junk bond market for a leading investment house, said during trading today.
"Before this, the perception of the market was that Trump has lots of money and can make things work.
"Now there's a feeling that he might not have the capacity to do it, or the banks won't let him."
Trump's failure to sell any of the real estate properties that have been on the auction block in recent months was a sign of how the economic environment has turned against him.
In the past, it was thought that he owned so much real estate and so many big-name franchises that he could use one as collateral to borrow money if it became necessary to bail out another.
Today, this kind of balancing act has become more difficult owing to the across-the-board decline in real estate prices, especially in New York, where Trump is based.
Some experts said Trump has been hurt particularly by the slump this year in financial markets in Japan, where he came close to finding buyers for some of his properties but was ultimately unsuccessful.
One leading Wall Street bond expert said Trump was hurt in the eyes of many Japanese businessmen by his much publicized marital difficulties.
Trump's estranged wife Ivana has sued him for half of his property, and the Japanese are worried now about getting involved in deals with Trump because of claims that Ivana may have, the source said.
"Trump used to be viewed in Japan as the guru of real estate investing," the bond specialist said.
"Now they're worried that Ivana may have a claim on him."
Staff writer Howard Kurtz contributed to this story.
June 15 is shaping up as a critical date for Donald Trump. That's when the following payments must be made to cover obligations related to the Trump Castle casino in Atlantic City.
Trump Castle junk bonds: $19 million interest payment.
Trump Castle "sinking" fund: Approximately $7 million.
Personal bank loan to Trump: To finance his equity in Trump Castle; originally was $70 million, but most of it reportedly had already been repaid. The remainder, an unknown amount, is due on June 15.
SOURCE: Wall Street bond analysts
A PARTIAL LIST OF DONALD TRUMP'S ASSETS
AND THE DEBT ASSOCIATED WITH THEM, IN MILLIONS OF DOLLARS
Taj Mahal...........Atlantic City.......$835.........$835
Trump Plaza Casino..Atlantic City....... 637..........273
Trump Castle Casino..Atlantic City.......605..........410
Plaza Hotel......... New York............450........... 32
Trump Tower..........New York........... 200.......... 100
Trump Shuttle........New York............400.......... 400
West Side Yards......New York............650.......... 171
Personal boats, planes.................. 39.............0
Personal residences..................... 30............ 39
SOURCE: Trump Organization