Donald Trump fails to negotiate with bondholders to save himself from bankruptcy. The “billionaire” missed yesterday’s midnight deadline for a $47.3 million interest payment and defaulted on his $675 million Trump Taj Mahal debt.
Trump knows he won’t be able to make the payment before the 30-day grace period ends next month, so he agrees to a prepackaged bankruptcy with bondholders represented by Wilbur Ross and the Rothschild firm. If the deal is approved in court, Taj Mahal bondholders will obtain up to half of Trump’s stake in the casino.
Today’s agreement is not an official bankruptcy filing. It only means that Trump and the people he owes can avoid a lengthy court process, if a judge approves their agreement. The company begins the bankruptcy process in early 1991.
In a prepackaged bankruptcy, the debtors and certain required majorities of each class of creditors and equity holders accept a reorganization plan before the company files for protection under Chapter 11 of the Federal Bankruptcy Code. In such an instance, the company’s management gives the bankruptcy judge a full plan that needs only the court’s approval. This prepackaged plan generally results in a controlled and speedy reorganization, rather than the lengthy, expensive and treacherously unpredictable process that often follows a Chapter 11 filing.
The New York Times
If it were anyone but Donald Trump, the bondholders would instead have decided to take the casino owner to court for full ownership. But a friend of Trump’s stepped in: corporate raider Carl Icahn.
Had it not been for the intervention of Carl C. Icahn, the corporate raider and financier who is the single largest bondholder, Mr. Trump would probably not have gotten that second chance, but would have been forced into a messy bankruptcy battle in which the bondholders had the upper hand…
Despite meetings past midnight last Thursday, and a 2 A.M. conference call between Mr. Ross, Mr. Icahn and Mr. Trump, questions remained unresolved regarding how much equity the developer would get back if he met the financial goals and what those goals should be.
Mr. Trump wanted to get back more than 80 percent of the equity, and he was arguing for less stringent standards; Mr. Ross and Mr. Icahn were on the other side of the fence. By Friday morning, after the payment had been missed and no settlement reached, the bondholders decided to try one more conference call at 10 A.M. before announcing that they had reached no settlement, making an involuntary bankruptcy filing a near certainty… It was then that Mr. Icahn began playing his pivotal role.
He joined the conference call of nearly 100 bondholders, at Mr. Ross’s request, and made it clear that he supported allowing Mr. Trump to retain 50 percent of the equity and control of the board. With the support of Mr. Icahn, Mr. Ross’s group and the Japanese bondholders, who were now actively involved for the first time, it was clear to all those on the conference call that enough bondholders supported the deal to force it on the others. Some time after noon the conference call ended, and Mr. Ross and Mr. Icahn took the final offer to Mr. Trump, who agreed to it.
The New York Times
Trump has another interest payment coming up in December for Trump’s Castle Hotel and Casino. The Trump’s Castle debt is easier to afford thanks to a deal with banks in June, but that deal only covers the money he owes banks. Trump still has to make interest payments on the money he owes to Castle bondholders. He manages those payments by arranging a line of credit between the Trump Organization and a then-unknown foreign bank.
External Sources
NYT – November 16, 1990 (Archived)
NYT – November 17, 1990 (Archived)
NYT – November 22, 1990 (Archived)
NYT – November 26, 1990 (Archived)
NYT – December 18, 1990 (Archived)
Photo: Jeffrey Asher / Getty Images
