Trump Borrows $60 Million to Meet Interest Payments : Finance: The developer agrees to put up more collateral to obtain the new loans from his four major bank creditors.
Donald J. Trump’s major creditors have agreed to loan him another $60 million so he can meet a key interest payment this week and obtain some breathing room to reorganize his finances, a banking source confirmed Monday.
The agreement, which would suspend interest payments on about $2 billion in loans, has been approved by four large New York banks and is being reviewed by Trump’s 10 smaller creditors.
In return for the cash infusion, Trump has agreed to pledge added collateral on some of his choicest properties, including the Trump Tower in Manhattan and Trump Plaza Hotel in Atlantic City, N.J. Trump declined comment on the agreement, as did spokesmen for the lenders.
“The whole premise is that it gives him time to sell assets in a more orderly way,” said a banker close to the deal. “That makes sense for the banks, too.”
Trump wants the money this week so he can meet a $25-million interest payment on the bonds of Trump Castle, one of three casino hotels that he owns in Atlantic City. Trump Castle, which is losing money, is the shakiest of his casino hotels, experts say.
“He’s got to have his cash by Friday,” the banker said.
Trump’s major lenders in New York are Citibank, Chase Manhattan, Bankers Trust and Manufacturers Hanover. Other creditors are said to include banks from Japan as well as at least two lenders from New Jersey, Midlantic National Bank and First Fidelity.
The disclosures are the latest twist in the ongoing drama about the cash crunch facing Trump, New York’s best-known and most controversial developer and the largest gambling operator in Atlantic City.
A man of prodigious assets and debts, Trump has been squeezed by depressed real estate values in Manhattan and a sharp slowdown in gambling revenues. Although he does not have enough cash to pay his bills, he does not want to raise money by selling choice assets at fire-sale prices, financial experts say.
“The guy has a real problem,” the banker said. “There’s more outflow than inflow.”
Trump’s problems coincide with a general nervousness about the nation’s real estate market. Problems have been particularly severe in New York, New Jersey, Florida and Arizona. The market also has slowed dramatically in California.
On Monday, Moody’s Investors Service lowered credit ratings on some of Chase Manhattan’s long-term debt. Chase is a major real estate lender nationwide.
“The U.S. is facing a cyclical real estate problem similar to one it had in the mid-’70s,” a Moody’s official told Associated Press, “and this time we may not be inflated out of it the way we were in the late ‘70s.”
Citibank is said to be Trump’s largest lender, with some $300 million in outstanding loans, while Bankers Trust has more than $100 million in unsecured loans, the banking source said. The two banks are said to be providing about three-quarters of the $60 million in new loans.
One Trump insider maintained that the casino hotels are worth $2 billion or more, but the real question is how much cash they will generate this summer during the height of the tourist season.
“If he can’t make those casinos dance between now and October, then he is in trouble,” said one Trump business associate.
The news of Trump’s lending agreement drove up the value of the bonds on his casino hotels, but it failed to impress some property experts in Manhattan, where the real estate market is in the throes of a severe recession.
“As far as we’re concerned, he’s gone,” said a real estate expert who agreed to be interviewed if he were not identified by name. “It’s just a matter of how the banks take him out.”
He added that $60 million “is not going to last him a year. It’s just a fraction of what he needs.”
One of the early chroniclers of Trump’s financial problems was James Grant, publisher of Grant’s Interest Rate Observer, a financial-industry newsletter. In his latest issue, Grant pointed out that long-term rents on prime real estate in Manhattan are plunging.
“What is not widely appreciated, either inside New York or outside, is the spreading weakness of Manhattan real estate,” Grant said. “If it’s office space you want, you can get it at prime Wall Street locations in the range of $14 to $15 a square foot. . . . Two years ago, the going rate was $25.”
NEXT STEP
Now it’s up to developer Donald Trump’s smaller lenders to decide whether to accept a financial shake-up that gives him some breathing room to straighten out his troubled finances.
