Wednesday, August 05, 2009

Trumped by Trump? - Bloomberg News - 5th August 2009

Trump Entertainment Resorts bondholders are preparing to challenge Donald Trump's plan to buy the bankrupt casino company and leave them with nothing.

Trump and an affiliate of Beal Bank Nevada agreed yesterday to invest $US100 million ($119 million) in the company, while Beal would postpone the maturity date of a $US486 million loan until December 2020 from 2012. Bondholders, who are owed $US1.25 billion, may argue in bankruptcy court that the deal undervalues the company, whose assets consist mainly of three casinos in Atlantic City, New Jersey, according to a person familiar with the situation.

``The stories of Mr. Trump's regaining control of the debtors are simply inaccurate,'' said Kristopher Hansen, co-head of the financial restructuring practice at Stroock & Stroock & Lavan LLP in New York, who is representing bondholders. ``The plan proposed by Beal Bank and Donald Trump is not capable of confirmation for many reasons,'' Hansen said in an e-mailed statement.

Trump is attempting to recover control of the company he founded after the properties it owns ended up in bankruptcy protection a third time. Any value above the Beal loan, which ranks first for repayment, should go to bondholders, according to the person, who declined to be identified because the creditors are still discussing how to respond. Shareholders would also get nothing under Trump's offer, which requires court approval.

`Too low'

Trump's plan puts ``too low'' a valuation on the company and we ``suspect bond holders, who are second lien but are being offered nothing in this plan, will object,'' Barbara Cappaert, an analyst at high-yield research firm KDP Investment Advisors Inc. in Montpelier, Vermont, wrote in a report today. ``This will likely delay an eventual reorganization for several more months.''

Atlantic City-based Trump Entertainment filed for Chapter 11 bankruptcy in Camden, New Jersey, on Feb. 17, days after Trump quit as chairman and said he was severing ties. At the time of the filing, the company listed assets of $US2.06 billion and debt of $US1.74 billion as of Dec. 31.

``The filing of a bankruptcy plan is standard in the restructuring process and signifies the start of a many months long process that guarantees no certain outcome,'' Hansen said.

Tom Hickey, a Trump Entertainment spokesman, declined to comment beyond yesterday's company statement.

Bondholders will ``have a very hard time proving'' the casino company is worth more than $US500 million in court, Trump, 63, said in a telephone interview today.

`Needs leadership'

``They appointed most of the board of directors and this was already sent to the board,'' Trump said. Bondholders have failed to reach their own agreement with the board, he said.

Additional capital from bondholders would be too expensive and under any plan other than his own, Beal Bank may not let Trump Entertainment extend the maturity on the loan, Trump said.

Bondholders ``want to invest money with a large amount of interest on that money, and that doesn't work,'' Trump said. ``These people have been running the company for the last three years. They put the board on, they hired everybody and look what happened. I haven't been involved in management in a long time. This is a company that needs equity investment and needs leadership.''

Trump Entertainment's $US1.25 billion of 8.5 per cent notes maturing in 2015 last traded at 12.25 cents on the dollar on July 23, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities traded as high as 103.375 cents as recently as June 2007.

Cappaert recommends investors ``hold'' the securities because ``bondholders deserve and will earn a level of return consistent with current bond prices,'' she said in the report. (Credit: Bloomberg News)

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