NEW YORK, NOV. 16 -- Cash-strapped real estate developer Donald Trump agreed to put the Taj Mahal, his newest and grandest Atlantic City casino, into bankruptcy proceedings and pledged to hand over half ownership to his lenders.
Trump, in an unusually subdued mood, announced the accord this afternoon hours after he defaulted on a $47 million payment on junk bonds floated to finance construction of the opulent casino that he opened just seven months ago and advertised as the "eighth wonder of the world."
"The Taj Mahal is caught in a huge recession -- maybe the word is depression," Trump told a crowded news conference in a gilded conference room at his Plaza Hotel here. He insisted that he was just one among many victims of the economic downturn in the Northeast, saying the same problems were afflicting "anybody that's done anything in the past few years, as I have."
Trump's offer to surrender 50 percent ownership of the Taj Mahal marks the first time in his much-chronicled, meteoric career that a cash shortage has forced him to give up a stake in any of his major properties. While both Trump and the bondholders said the casino would emerge from the bankruptcy process after just a few weeks, the deal was a dramatic and humbling reversal for a man who took such pride in his business talents that he titled his first bestselling book, "The Art of the Deal."
The accord will add to the strains on Trump's financial condition in several ways. Since his stake in the Taj Mahal has been pledged as collateral for some bank loans, the slash in his ownership could weaken his position with other lenders, especially if the casino's economic fortunes fail to improve.
In addition, the default will tarnish the Trump image, which he himself has always proclaimed to be one of his most important assets.
Trump's financial woes already forced him to undergo a sweeping restructuring of his properties in the summer in order to get a new $65 million loan from his banks.
Trump declined to comment on whether he would default on a bond payment due in mid-December on another of his Atlantic City casinos, the Castle, as many bond market analysts have predicted. But he emphasized that he could not foresee circumstances in which he would have to declare personal bankruptcy.
Although he repeatedly refused to admit before the reporters and television cameras that the Taj Mahal would be placed in Chapter 11 bankruptcy proceedings, Trump signed a four-page document saying that that was the plan. One of his advisers predicted the bankruptcy filing would take place about a month from now.
Trump also acknowledged that a bankruptcy filing "could save a lot of time and effort," by making it easier for legal and tax reasons to carry out the financial restructuring. And he emphasized -- without quite admitting publicly that a bankruptcy filing was in the future -- that such a proceeding would last only "three to four weeks."
The deal was announced the same day Trump released financial statements for his three casinos that showed him losing $29.5 million on the Taj Mahal, $24 million on Trump Castle and eking out a $2.6 million profit on Trump Plaza.
While the accord over the Taj Mahal was undeniably a setback for Trump, it meant that he avoided being pushed by bondholders into a hostile bankruptcy proceeding, in which he would have faced a serious risk of losing the casino altogether.
Instead, the Taj Mahal is to go into a friendly, or "prepackaged," proceeding in which Trump and the bondholders present the bankruptcy judge with a financial rescue package all ready for approval.
"We envision a prepackaged Chapter 11," said the agreement signed by Trump and the bondholders, the largest of whom is stock speculator Carl Icahn, a friend of Trump.
In addition, Trump can take some satisfaction that his vaunted bargaining ability helped him obtain a better deal than many observers had expected. In three days of marathon negotiations in which the participants broke only for a few hours each night, Trump managed to block the bondholders from obtaining a controlling interest of up to 90 percent in the Taj Mahal, as they had sought.
Moreover, if the casino performs well enough so that Trump eventually pays the bondholders all the money that he owes them, the deal provides for him to be rewarded by getting back stock that could raise his ownership stake to as high as 80 percent.
The bondholders also agreed to let Trump pay 12 percent interest on the $675 million worth of bonds, down from the 14 percent rate he promised to pay when he issued them.
But Trump also made some concessions, beyond giving up half the stock. While he will control the casino's board of directors at first, the accord provides for the bondholders to gain a majority on the board if the casino's cash flow falls short of its targets by 15 percent or more.
Trump also gave up his right to be repaid $25 million that he once loaned the casino, transferred some land to the Taj Mahal and took a sharp cut in the fee that he is paid for operating it.
Today's deal still requires endorsement of a majority of bondholders, and must be approved by Trump's bank lenders and New Jersey state gambling regulators. But the negotiators for the bondholders said they had the support of holders of 90 percent of the bonds.