Fast Reorg for Trump Hotels

The company paved the way for quick approval when it hammered out a deal last week with dissident shareholders.
Stephen TaubApril 6, 2005

Trump Hotels & Casino Resorts won court approval yesterday to emerge from bankruptcy in a debt-for-equity swap that provides some compensation to equity investors.

Last week, Trump Hotels paved the way for this quick approval it hammered out a deal with dissident shareholders. The company agreed to pay the group $17.5 million in cash and to let it share in the proceed from the sale of the former Atlantic City site of the World’s Fair casino.

As a result, shareholders are expected to wind up with between $2 and $3 per share instead of about a half-cent per share, according to the Associated Press. Usually, of course, equity holders end up with nothing after a company emerges from bankruptcy.

For years, Trump Hotels has been weighed down by $1.8 billion in very expensive junk-bond debt. Under the plan — approved overwhelming by bondholders and OK’ed by U.S. Bankruptcy Judge Judith Wizmer — the interest rate will be drastically reduced, enabling the company to save about $98 million per year in interest expense.

The Chapter 11 reorganization will create a new company called Trump Entertainment Resorts Inc., reported the AP. Donald Trump’s stake in the company will shrink from 56 percent to about 30 percent, according to Reuters, while bondholders will own about two-thirds of the new entity. Trump will be the chairman of a nine-person board, five of whom were chosen by bondholders, added the AP.

The company will formally emerge from bankruptcy on May 2, according to the wire service.