A grim-looking Donald J. Trump agreed Friday to put his Taj Mahal casino hotel--once hailed as the "Eighth Wonder of the World"--into bankruptcy court and give his main creditors a half interest in the onion-domed complex, Atlantic City's largest gambling parlor.
The deal was reached slightly more than 12 hours after the New York developer missed a $47.3-million interest payment on $675 million worth of junk bonds used to finance the Taj. Though the $1-billion casino hotel has generated plenty of business since it opened April 2, it has not generated enough cash to finance a crushing debt burden.
The agreement is another example of how Trump's real estate and gambling empire, once estimated to be worth as much as $3 billion, has come crashing down in the past year, primarily due to the recession that has gripped the East Coast.
Under the compromise, Trump agreed to restructure the debt in what is known as a prepackaged bankruptcy. The accord will allow the casino to emerge from court protection in a very short time, negotiators said.
"The result is turning out to be a very positive one," Trump said at a news conference with representatives of the bondholders.
Though final details of the Taj deal remain unsettled, a spokesman for the creditors said that it contained incentives for Trump to improve the financial performance of the casino. Bondholders had threatened to take control of the casino in what promised to be a long legal battle.
It was only five months ago that Trump narrowly avoided a default on his Trump Castle casino, another one of his three casino hotels in Atlantic City, through an 11th-hour, $65-million bailout put together by his principal lenders.
Trump, a cocky figure in better days, appeared grim at Friday's news conference, held at Manhattan's Plaza Hotel, which he owns. Trump allowed his colleagues to do the talking, saying, "You'll have to ask the lawyers" when asked about the bankruptcy.
The deal makes Trump responsible for keeping the Taj Mahal in reasonable financial health. Wilbur Ross, attorney for the bondholders, said the casino must operate within 15% of its budget or control will pass to the bondholders.
"It's very much a carrot-and-stick approach here that we've adopted," said Robert Miller, another attorney for the bondholders.
The agreement calls for the interest rate on the bonds to be reduced from 14% to 12%, of which 10% will be paid in cash and 2% in bonds. Thursday's missed interest payment will be added to the principal amount of the bonds.
The bonds' maturity date was pushed back two years to 2000. If Trump is able to pay the original 14% interest on the bonds, his stake in the Taj Mahal will increase from 50% to 80%.
Ross said he believed that investors holding 90% of the bonds have agreed to the restructuring, including Carl C. Icahn, the Taj's largest bondholder. Ross said Icahn played a key role in the debt restructuring talks.
The bankruptcy filing will be made within a few weeks.
When the Taj opened, it billed itself as the "Eighth Wonder of the World," but it has not been been able to generate the nearly $40 million a month that analysts say it needs to pay all its bills. Business in Atlantic City has slumped as the East Coast economy has weakened.
Trump's three casinos--the Taj, Trump Castle and Trump Plaza--all have high-interest junk bonds outstanding. Trump turned aside questions Friday about an upcoming interest payment on the Castle, saying, "We'll talk about that later."
The Associated Press contributed to this story.