DONALD Trump’s Casino Company filed for Chapter 11 Bankruptcy reorganization ten months ago for the third time. Trump Entertainment Resorts owns Atlantic City’s Trump Taj Mahal Casino Resort, Trump Plaza Hotel and Casino, and Trump Marina Hotel Casino. Mr. Trump is actually a minority stockholder of the Casino Company that bears his name with 28% of the company’s stock. The company’s last bankruptcy filing was in 2005. That Bankruptcy resulted in the creation of Trump Entertainment Resorts, which filed for Bankruptcy relief in February 2009. Debt left over from the 2005 restructuring coupled with the current recession that has dragged on for 2 years and competition from slot parlors in Pennsylvania and New York have given stiff competition to Atlantic City.
Bondholders are owed $1.3 billion. It has $2.06 billion in assets and $1.74 billion in liabilities. The company could not pay $53.1 million of debt payment due December 1, 2008 and filed for Bankruptcy in February.
As a debtor in possession in a Chapter 11 Bankruptcy, the casinos were open for business as usual with vendors, employees and winning bets paid. However, bondholders were left with no viable option but to wait for a decent Chapter 11 plan to see how and when they were going to be paid, if they were going to be paid. Several days ago, billionaire investor Carl C. Icahn agreed to buy a majority of the first trust deed bank debt of Trump Entertainment Resorts as part of the Chapter 11 reorganization plan to move the company out of bankruptcy court. The deal includes Beal Bank’s agreement to convert $486 million mortgage on the casinos into equity. Icahn said that the resultant company would have no debt. This means that Icahn and Beal Bank will end up owning a big chunk of the stocks of the company with the Donald and bondholders owning the rest.
Converting debt into equity is a routine move for Chapter 11 business debtors. Debt to equity conversion makes sense because owning the business of debtor is better than trying to collect money from a bankrupt debtor. If the resultant business entity has no debt and the business is still viable, it is likely that the business will start to be profitable after bankruptcy. Profits generated by the business will be used to pay owners dividends instead of paying interest to creditors. Former creditors who are now owners of the business will now get a share of profits. If the business continues to be profitable in the long run, creditor owners have a good chance of recovering their principal and interest in the form of profits. Conversion of debt to equity works for getting business debtors out of bankruptcy court without debt in a Chapter 11. But individual debtors who owe credit card and other unsecured debt cannot depend on this kind of transaction in bankruptcy. Think about it. If you owe credit card debt of $100,000, you cannot ask Visa and MasterCard to convert that debt into equity.
Best wishes for 2010!
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.
( Published January 6, 2009 in Asian Journal Los Angeles p. B4 )
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