TIME: Almanac 1993/TIME Almanac 1993.iso/time/061890/0618207.000

Text File | 1992-08-28 | 8.8 KB | 212 lines

                X*ª                                                              BUSINESS, Page 60

Trouble with a Big T


Running short on cash, an '80s icon struggles to save his
overleveraged empire

By CHRISTINE GORMAN -- Reported by Mary Cronin/New York and
William McWhirter/Chicago


    Before making his fateful decision to sink $1 billion into
the bejeweled Taj Mahal Casino in Atlantic City, Donald Trump
should have done his homework on the ill fortune that befell
the builder of the original Taj. The cost of constructing the
17th century Indian marvel, which took 20,000 laborers 22 years
to complete, eventually exhausted the royal treasury of the
Shahjahan and triggered the decline of the Mogul Empire. Nearly
350 years later, the Taj's modern namesake may have unleashed
the grandiose downfall of Manhattan's self-styled King of the
Deal.

    His empire lay under siege last week, staggering beneath the
burden of debt Trump has accumulated in his insatiable buying
spree of the past few years. The Grand Acquisitor never seemed
to notice that the Roaring Eighties had ended until suddenly
his cash started running out. So far, Trump has not missed any
payments on his estimated $3 billion in loans and junk bonds.
But his lenders and suppliers have begun to fear that Trump's
domain is an overleveraged structure built on swagger and
bluff. His creditors have suddenly demanded proof of his
financial prowess, and he is coming up short. "He's a desperate
man. Everywhere Trump is walking, there's a fire under his
feet," observes Irwin Jacobs, the Minneapolis financier and
sometime raider. "It shows how quickly things can go bad."

    The prospect of his downfall set off a fresh round of
amazement among Trump watchers, who only four months ago had
savored the melodrama of his separation from his wife Ivana and
his affair with the model Marla Maples. The distress of Donald,
the biggest self-promoter of the past decade, was too poetic
to resist. TRUMP IN A SLUMP declared the New York Daily News.
UH-OWE! said the city's Post, which dubbed Trump's new casino
"the eighth blunder of the world."

    On the 26th floor of the gilded Trump Tower in Manhattan,
the brash developer and his lieutenants barricaded themselves
behind closed doors last week to meet with a phalanx of worried
lenders. Officials from four major banks, who have extended an
estimated $2 billion to the developer, are negotiating with
Trump to reduce his debt load by stripping down his empire.
Investors who hold more than $1 billion in junk bonds that
Trump issued to finance his three casinos have seen the market
value of their securities plunge by as much as 50%. Bondholders
of two Atlantic City properties, the Trump Castle and Trump
Plaza Hotel and Casino, filed a lawsuit last week charging that
the tycoon had diverted clientele from his older casinos --
contrary to his assurances -- to his new Taj Mahal.

    Trump's search for cash is proving painful because the
economic conditions that fueled his juggernaut have changed
sharply. The slumping Northeast economy has undermined
real-estate values, so that many of Trump's properties are
worth far less than he estimated when he borrowed against them
to make other purchases. Real-estate experts believe that if
Trump were to sell the Plaza Hotel, which he bought in 1988 for
$400 million and spent at least $25 million refurbishing, he
could lose millions on the investment.

    Yet Trump knows he must part with some of his crown jewels.
He is trying to sell the Trump Shuttle airline, but his timing
is unlucky. Reason: the rival Pan Am shuttle is up for sale as
well. Because the Trump Shuttle has failed to dominate the
market as he had hoped, Trump is unlikely to sell it at a
profit. And real-estate agents in Palm Beach say Trump has been
offering Mar-a-Lago, his 118-room Palm Beach estate, for an
asking price of $30 million.

    For the most part, Trump has steadfastly denied his
difficulties, perhaps observing a lesson from his own book.
"The worst thing you can possibly do in a deal is seem
desperate to make it," Trump wrote in his 1987 best seller, The
Art of the Deal. "That makes the other guy smell blood, and
then you're dead." But Trump's arrogant business style is
haunting him now that he needs understanding. "Trump's
personality works against him," says a top investment banker.
"His own behavior created a level of scrutiny about his
judgment, his ability to pay and his `high moral standing,'
which are the criteria in lending money."

    Trump built his empire on rising land values. New York City
was flirting with bankruptcy in 1976, when, at 30, Trump and
hotel magnate Jay Pritzker bought the run-down Commodore Hotel
at Grand Central Terminal for $10 million. The partners tore
down the Commodore and built the Grand Hyatt luxury hotel in
its place. The city recovered, and the hotel's value (current
estimate: $70 million) soared with it. Borrowing against his
stake in the Hyatt, Trump parlayed his first success into more
and more prime real estate.

    The seed of his current trouble was planted in 1987, when
Trump got tangled in a bruising takeover battle with another
tycoon, Merv Griffin, for control of Resorts International. In
a deal they both claimed as a victory, the two split up the
company, with Griffin taking most of Resorts and Trump getting
the uncompleted Taj Mahal. Griffin's older, debt-laden
properties went into bankruptcy only two years later. Trump had
to borrow an estimated $1 billion to finish the monstrous Taj.
Ominously, the city's casino business, which had grown
pell-mell during the '80s, abruptly stagnated.

    At the same time, Trump began to suffer from management
problems. Last October his casino operations suffered a tragic
loss, when three of Trump's top-notch casino executives died
in a helicopter crash. Among them was Stephen Hyde, 43, chief
executive of Trump's gaming operations. "Steve knew how to
force Donald to listen," says Jack O'Donnell, who headed the
Plaza Hotel and Casino until he resigned in April. "Once Steve
was gone, Donald had to get more involved in the business. He
started operating the budget based on his ego, not on reality."
As the opening of the Taj came under repeated delays, Trump
grew increasingly abusive toward employees.

    A month before the Taj Mahal's opening, industry analyst
Marvin Roffman predicted the casino would have trouble bringing
in the cash flow -- $1 million to $1.3 million a day --
necessary to make loan payments. When an enraged Trump
threatened to sue Roffman's employer, the Philadelphia
brokerage Janney Montgomery Scott fired Roffman instead. So far,
Trump officials contend the Taj's total revenue averaged $1.6
million during May, but industry analysts believe the cash flow
could fall perilously low during the slow fall season. The
casino-hotel has already laid off 350 of its 7,200 original
employees, which Trump executives describe as a routine
streamlining.

    Another wild card in Trump's finances is his estranged
wife's claim on Trump properties. While Ivana signed a
prenuptial contract limiting her settlement to $25 million in
case of divorce, her lawyers have argued that she helped build
Trump's holdings and have filed claims to half his estate. Yet
Ivana refused to take advantage of her husband's financial
distress last week. While dedicating a new public plaza outside
the Plaza Hotel, which she runs, Ivana tossed a couple of
pennies into the fountain. "Hopefully it will bring us good
luck," she said. "It can't get much worse."

    Trump is by no means finished, but he will need help to get
him through his liquidity crisis. "Long term he has some good
deals here," says one investment banker. "If he has the cash
flow to pay the debt, in five years he really would be a
billionaire." Trump's creditors may decide that it is in their
own best interests to save him. "The banks may not want to shut
him down because they may then have a whole lot of potential
real-estate problems on their hands," says one Wall Street
source.

    Trump seems ill prepared for hard times, but he must have
seen them coming. "The '80s have been a time of great
opportunity," he said last December. "I think the '90s are
going to be much trickier than the '80s. There will be many
more traps." Ironically, one person in a position to rescue
Trump is his father, Fred Trump Sr., a real-estate developer
in Brooklyn and Queens. According to one financier, Trump pere
owns enough debt-free property and other assets that he could
easily loan his son a few hundred million dollars. Evidently
Donald didn't pick up his debt habit at home.


____________________________________________________________