The fear of bankruptcy crackled through a cloud of static on June 18, 1991, when a telephone operator set up a conference call among dozens of people who had the power to drive one of Donald Trump's casinos into bankruptcy court.

The two-hour discussion, which was recorded on tape, provides rare insight into the reasons Trump's lenders showed restraint.

The participants held tens of millions of dollars worth of bonds that the Trump Castle casino and hotel in Atlantic City had issued to raise money.

The bondholders had the right to take the Castle away from Trump because it had missed a $41 million bond payment.

But a committee of bondholders led by Putnam Management Co., a Boston mutual fund manager, was trying to convince other bondholders that making major concessions to Trump was better than getting involved in a legal struggle. The committee predicted that if the bondholders tried to foreclose, Trump would put the Castle in bankruptcy, where it could languish for two to three years.

The recording was made available to The Washington Post by Randolph J. Goodman, a broker in North Miami Beach, Fla. He had bought Castle bonds when they were trading at depressed prices and argued in the conference call that the Putnam group should take a tougher stand against Trump. Goodman said the recording was made by a bondholder in New York.

"The typical bankruptcy court today is overwhelmed in the Northeast," William F. McCarthy, a lawyer for the bondholders committee, began. "The judge has, if he allocates his time on a reasonable basis, probably 20 minutes a month for a case like this. ... We feel that this bankruptcy case has the potential to be extended, to be bitter, to be litigious and to be expensive," he said.

"It's a huge wild card based on my experience," Putnam executive Edward H. D'Alelio chimed in.

"People could get totally crushed," added Warren Foss, financial adviser to the bondholders committee.

Foss and the other people advising the bondholders warned that a bankruptcy judge probably would leave Trump in place as manager, as long as New Jersey casino regulators didn't revoke Trump's casino operating license.

"A judge is going to allow him to remain as operator of the casino? We would be stuck with the worst guy in town?" Goodman asked incredulously.

"If it were possible to throw the bums out on the basis of their past performance, the standard in bankruptcy would be the immediate appointment of a trustee" to oversee the business on behalf of the court, McCarthy, the lawyer, replied. "But in virtually every case that goes to bankruptcy court, management is left in place."

The discussion turned to what Trump should be forced to give up -- and what he should get -- in a deal to avert bankruptcy.

A Boston investment analyst said that, as a practical matter, the bondholders would have to let Trump keep at least half of the casino's ownership, even though the bondholders legally were entitled to take all of it.

"For us to take at the outset more than 50 percent of the equity would be an extremely difficult negotiating point for the Trump Organization to sell to Donald," said John G. Power of Baring America Asset Management Co.

"His ego is such that it's very important for him to feel that he can boast to people that he's got at least half the company," Power said.

In a test of wills, it seemed, Trump's ego counted for almost as much as the bondholders' contractual rights.

Foss, the financial adviser, said that he and other representatives of the committee had bluntly told members of the Trump Organization, "You've done a terrible job. ... We'd like you to be gone."

Still, Foss argued that paying Trump a $1.4 million annual management fee made more sense than taking a chance on the bankruptcy process.

Several of the bondholders believed the fear of bankruptcy was overblown and wanted no part of the deal.

"I say let's go for bankruptcy," Lawrence Lambert, a Fairfield, Conn., investor said with agitation. Trump "is going to be emasculated in bankruptcy," Lambert exclaimed.

But a majority favored a deal, and the one that finally was accepted illustrates the way Trump avoided financial ruin. It left him with 50 percent of the Castle's stock and a majority of seats on its board of directors.

At the same time, the deal put creditors on the board and prohibited Trump from making major decisions about the Castle's management without their approval.

Under the agreement, if the casino fails to meet a series of financial goals, the bondholders have the right to take control without going to court. The casino has been exceeding its goals for this year.

The deal also entitles Trump to the $1.4 million management fee as long as the Castle meets the earnings targets.

Although the agreement eventually was submitted to a bankruptcy court for formal ratification, it was first negotiated out of court.

That kind of arrangement -- called a "prepackaged bankruptcy" -- averted the prolonged, costly, all-out battle in bankruptcy court that bondholders feared.

Bondholders for Trump's two other casinos, the Trump Taj Mahal and the Trump Plaza, negotiated similar settlements.

During the conference call, Castle bondholders did not say in detail how they believed Trump had mismanaged the casino. However, in recent interviews, bondholders said that they blamed Trump for a steep decline in the Castle's financial performance.

They specifically criticized him for opening the Trump Taj Mahal casino to compete with the Castle and for building a $110 million addition to the Castle, which they said was ill-conceived.

Told that bondholders made such criticisms, Trump said he "wasn't able to focus on the business" for a time because he was distracted by a contentious divorce.

"I do think their criticisms at the time were justified," he said of the bondholders. -- David S. Hilzenrath