Donald Trump can’t afford an upcoming $47.3 million interest payment on the Trump Taj Mahal’s debt, so he plans to offer new “junk bonds” to bondholders to reduce the cost of the interest payments. (I’m not an expert on banking or finances, but I believe this is similar to taking a second mortgage.)

The interest rate on $675 million of the original Taj Mahal bonds would fall from 14% to 9%, and the due date for full repayment would extend two years. The current maturity date is Nov. 15, 1998.

Trump’s future Commerce secretary, Wilbur Ross, tells the New York Times that the move has worse consequences for everyone involved than just filing bankruptcy. Trump, Ross says, is scamming his bondholders.

From The New York Times – October 19, 1990:

”What he is asking the bondholders to do is to make him a couple of hundred million dollars as a present,” said Wilbur Ross, senior managing director of Rothschild Inc., which has been retained by the bondholders’ steering committee. ”We think it’s a little too early for Christmas….

”The economic reality of what he’s proposing is that instead of cash, we get paper,” Mr. Ross said. ”And in that case, we would greatly prefer to have the keys to the casino,” [which the bondholders will own if Trump files for bankruptcy]…

”This is far worse treatment than the bondholders would receive if we were to be in Chapter 11, so there is no point to it,” Mr. Ross said. He also pointed out that by allowing him to keep more than 80 percent of the Taj, Mr. Trump’s plan would leave the developer with all the tax benefits of owning a property that generates losses…

Mr. Trump’s real estate and gambling holdings are about $3 billion in debt. Last spring and summer, dozens of banks helped to cobble together a package of new loans and deferral of payments on about $1 billion out of $2 billion in bank debt.

External Sources

The New York Times – October 19, 1990 (Archive 1, Archive 2)

Photo: Marty Lederhandler | AP