In what could be a replay of 2005, Trump Entertainment Resorts is looking to reach a new deal with bondholders to restructure its suffocating debt and prop up its casinos.
The company’s stock has plummeted to 25 cents per share. As expected, it missed a USD 53.1 million interest payment this week.
Now come warnings of another possible journey through bankruptcy court. „It does represent an opportunity for us to get the leverage right this time and focus on creating a strong company that has better cash flow and allows us to do something instead of just paying interest,“ said Mark Juliano, Trump’s CEO.
The company, then known as Trump Hotels & Casino Resorts, shed hundreds of millions of dollars of debt and interest payments through a Chapter 11 bankruptcy restructuring three years ago.
While that deal created a stronger, new company called Trump Entertainment Resorts, the economic meltdown of 2008 could push Donald Trump’s gaming empire into bankruptcy restructuring again unless it completes the USD 270 million sale of the troubled Trump Marina Hotel Casino, according to one credit-rating agency.
Given Trump’s heavy debt load and the expected operating pressure in Atlantic City over the next 12 months, it is crucial for Trump to close the Trump Marina sale in order to avoid a restructuring, in the absence of another transaction,“ Fitch Ratings warned in a report.
New York gaming group Coastal Marina has a tentative agreement to buy Trump Marina, but has still not secured the financing to complete the deal. Trump Entertainment lowered the Marina’s sale price from USD 316 million to USD 270 million in October to prevent the deal from collapsing.
Trump Entertainment would use proceeds from the sale to pay down its enormous debt, now about USD 1.7 billion. Of that, about USD 1.25 billion is bond debt that the company hopes to restructure in negotiations with its lenders in coming weeks.
The company, as it announced last week would happen, missed a USD 53.1 million interest payment Monday on those bonds. It now enters a 30-day grace period to discuss ways to revamp its debt. Juliano said he is „pretty confident“ of reaching a deal that would cut debt even more and avoid another bankruptcy saga.
„We think we have chosen the right time to sit down with bondholders and try to work out a restructuring where we have a reasonable amount of leverage on the company,“ he said. „I think that when we came out of the last restructuring, we were in better shape, but we still had too much leverage. It didn’t even allow you a millimeter of error with a downturn in the market.“
Trump, the company’s chairman and largest single shareholder, is expected to take an active role in the latest negotiations. In 2005, he agreed to relinquish majority control of his casinos to bondholders in exchange for lower debt. Trump also invested USD 74.1 million of his own money to pull the company out of bankruptcy. Analysts say Trump probably will dip into his own pocket again to satisfy bondholders this time.
Juliano said it is premature to discuss any specific proposals. However, he did say that the company does not plan to sell either the flagship Trump Taj Mahal Casino Resort or Trump Plaza Hotel and Casino.
In the meantime, Trump has taken steps to reduce expenses without resorting to mass layoffs. The company’s highest-earning executives are taking a 5 percent pay cut and anyone else making USD 50,000 and above will not get a raise, Juliano said. The company has also reduced its matching contribution to employee 401(k) retirement plans.
Trump Entertainment, like other casino companies in Wall Street’s recent market gyrations, has been hit by a precipitous decline in its stock price. In trading Monday, it closed at 25 cents per share, an all-time low and off nearly 96 % from its 52-week high of USD 5.70. „I think it’s because of the debt,“ Juliano explained of Wall Street’s punishment of Trump stock. „I think they realize it has to be restructured.“
Trump Entertainment said cost-cutting is paramount in the wake of heavy losses in the third quarter. On November 7, the company reported a net loss of USD 139.1 million, or USD 4.39 per share, compared to a profit of USD 6.6 million, or 21 cents per share, in the third quarter last year. Net revenue fell to USD 198.3 million from USD 216.6 million.