The Donald May Once Again Hold Trump Card : Finance: High-flying ‘80s poster boy, who looked like a glossy deadbeat for awhile, seems to be enjoying a financial resurrection.
Is The Donald back?
Picture this: Donald Trump, surrounded by well-wishers, plunges a knife into a large gray-frosted cake shaped like a hunk of Manhattan’s elevated West Side Highway. The party last year celebrated city approval of his planned apartment complex near the relocated road.
Fast-forward four months, to Gulfport, Miss., where Trump wants to build a casino. On a steamy July day, dignitaries jam a waterfront party to honor Trump, sipping iced tea, nibbling fried chicken and gazing, awed, at the developer. Moby Solangi, whose company plans to lease land to Trump, later recalled: “We’ve had the president of Honduras, and the president of Belize, and we got 300 or 400 people. When Trump came, we had 600 or 700.”
Trump, the poster boy of the high-flying 1980s who looked like a glossy deadbeat a few years ago, behaves like he’s enjoying a financial resurrection.
He is regaining control of his three casinos after they underwent bankruptcy reorganization. He is snapping up Palm Beach real estate for a luxurious club. Within months, the man who brought you the Trump Tower probably will introduce another namesake: the Trump Stock.
“The business is doing so well. People perceive it as this great comeback,” Trump, 47, said in an interview at his Trump Tower offices, decorated with pictures of Trump casinos and magazine covers of Trump.
A peek behind the curtain of Trump hyperbole suggests a different story. Two of his casinos lost money for much of last year, and they still carry enormous debt. Bankers and some bondholders have lost tens of millions of dollars in Trump’s ventures. It’s unclear whether Trump himself has enough money for a major new project, although he claims otherwise.
Yet, Trump deals on.
How does he do it? Strong financial markets, a recent improvement at his casinos, and Trump’s own perseverance are some reasons.
But the most important may be the Trump name. Like J.P. Morgan or John D. Rockefeller, Trump has transformed his name into a symbol of success--a myth that transcends the rockier reality. Even as his backers have experienced the Mr. Toad’s Wild Ride of investing, Trump has maintained a mystique.
“He has a name that is really magic in the marketing world,” said Richard Kahan, an urban development expert who agreed to support Trump’s Manhattan apartment development.
Some of Trump’s latest activities:
* He is expected to offer stock in his casinos over the next three to four months. Securities analysts say Trump may raise tens or even hundreds of millions--though some estimate that the casinos aren’t worth more than their debt.
* Governments in Gulfport, Miss., and Gary, Ind., are supporting Trump’s casino projects--even though Trump said he won’t use his cash. “It just would be foolish to do that,” he said. “If you have a good project, the bondholders like Trump.”
* Community groups are teaming with Trump to support his 5,700-apartment project in New York. Trump is planning a novel way to guarantee financing: ask Uncle Sam.
Trump is proceeding even though he apparently didn’t have enough money to pay New York taxes on the apartment property over the past year. He owes $6 million in taxes and $700,000 in interest dating to January, 1993, said city Finance Department spokesman Joe Dunn. Trump said he has reached a repayment accord. Dunn said there is no accord yet.
Only two years ago, Trump looked financially humiliated. His property empire built on borrowed money was devastated by the recession and the real estate market collapse. His Atlantic City casinos and elegant Plaza Hotel in New York all sought bankruptcy protection.
Facing enormous debts, Trump surrendered properties ranging from his Trump Shuttle airline to his yacht--featuring a bedroom with a tortoise-shell ceiling and solid onyx shower.
“The fact is, I had 15 incredible years, and then the world went into a depression, plus I probably wasn’t working as hard or focusing as much as I was before, in all fairness,” Trump said.
“I realized I now had to focus totally and exclusively on this. I did. And it just worked out great.”
For him, maybe. But Trump admits his banks forgave some loans. While he won’t say how much, the banks wrote off millions of dollars, judging from his financial documents. Banks may lose even more as they sell Trump properties they took in exchange for loans, one bank source said, speaking on condition of anonymity.
Trump’s creditors could have tried to seize his assets. Instead, they bargained, anxious to avoid years of costly litigation and the possible loss of the Trump name, which they felt drew gamblers to Atlantic City.
Trump was forced to relinquish a half-interest in his casino-hotels and in the Plaza hotel to creditors.
Not for long.
In the last year, he reclaimed full control of two casinos and began negotiations on the third. With operating profits up, thanks partly to savvy new casino management, Trump was able to refinance. One casino, the Trump Plaza, actually assumed an extra $50 million in debt so Trump could pay some personal debts and taxes.
But talk of a comeback may be premature. Trump’s deals allow him to pay some of his interest in fresh Trump bonds. That may inflate his debt because of how the bonds are structured.
For example, $60 million of the debt on Trump’s Plaza will triple by 2001 if he pays the interest with more bonds instead of cash, an analysis by New Jersey’s Casino Control Commission shows.
“Whether the bondholders ultimately receive that amount remains to be seen,” said Randy Gaulke, a casino analyst at Moody’s Investors Service Inc. With interest payments gobbling up would-be profits, two of Trump’s casinos were in the red overall for the first nine months of 1993, the latest figures available show.
The casinos showed improvement in the third quarter. But they’re not flush enough so that Trump can withdraw enough to fund a new project, creditors and financial analysts say. Trump says it would depend on how big the project would be.
While Trump waved a financial report during an interview, saying he had $139 million in cash, he later said the sum included the approximately $127 million cash on hand at his casino companies--which he can’t remove.
As for his other ventures, Trump may still be shrinking. While he owns 51% of the Plaza Hotel, for example, the banks that loaned him money for the deal have taken the remaining 49%--and the right to sell the hotel, bankruptcy court records and bank sources say. Trump declined comment.
Trump also was supposed to sell a number of New York condominiums and his half-interest in the Grand Hyatt hotel in Manhattan by the end of 1993, to repay lenders, said a New Jersey Casino Control Commission report last June. Trump says he has worked out a deal with his banks to keep some condos and his Hyatt stake.
Asked how he can plunge into new projects, Trump grew incensed.
“I’m hot on the bond market. The bondholders like Trump,” he said.
Trump indeed may find financing for his new projects, if investors eager for double-digit returns continue to pile into his junk bonds, the non-investment-grade IOUs that offer high yields in exchange for high risk.
“Wall Street has a very short memory,” said Marvin Roffman, a casino analyst with Roffman Miller Associates in Philadelphia.
Trump also appears to believe a stock offering in his casinos will help him finance new projects. The casinos are groaning under $1.5 billion in debt, about equal to their value, securities analysts estimate. But Trump may offer two sweeteners: using the stock-sale proceeds to reduce the debt, and throwing in one or more new floating casino deals.
Again, his name helps.
“People certainly know who he is, they see him in the news, they read the books,” said Jason Ader, a gaming analyst at Smith Barney Shearson. “There’s certainly a market of retail investors who would like that opportunity” to buy Trump stock.
Trump estimates his companies still carry $3.5 billion in debt--$115 million of it guaranteed by him personally.
Trump’s deal partners appear unfazed by his financial past.
Local politicians in Gulfport believe a Trump casino will lure cruise ships. Officials in Gary are supporting Trump’s efforts to get a license for a floating casino on Lake Michigan.
“I would guess his name would probably be the biggest attraction,” said Clark A. Metz, an assistant to Gary’s mayor.
With his Riverside South apartments in Manhattan, Trump gave hostile community groups broad power in designing the project. In exchange, they shepherded it through New York’s zoning approval labyrinth.
Now, they are seeking federal mortgage insurance to guarantee fresh bonds, said Kahan, who chairs the Riverside South Planning Corp., which oversees the project.
Meanwhile, the $213-million mortgage on the property came due last June. A Los Angeles-based real estate firm, Colony Capital Inc., is negotiating to buy the mortgage, said sources close to the deal. Reportedly, the company is offering $80 million to $100 million. Trump declined comment.
Trump acknowledges that one of his secrets is sheer bravado.
“I play to people’s fantasies,” he wrote in his book “The Art of the Deal.”
“People may not always think big themselves, but they can still get very excited by those who do. That’s why a little hyperbole never hurts.”