NEW YORK -- Developer Donald Trump, minutes before a crucial hearing before the New Jersey Casino Control Commission, reached a deal Monday with Trump Castle bondholders due $41 million in interest payment -- but lost half of his casino in the gamble.
The Castle is one of Trump's three gambling properties in Atlantic City, N.J., together with the Trump Plaza and the Taj Mahal.
'Trump's Castle Funding Inc. and the steering committee of Trump Castle first mortgage bondholders today announced they have reached agreement on an outline of principal terms for a restructuring of the Castle first mortgage bonds,' the Trump Organization said.
'Under the terms of this agreement, the steering committee will recommend that the Castle be excused from making the scheduled interest and sinking fund payments due today, thus averting a default and possible acceleration of the bonds,' Trump's company also said in a statement.
With the agreement, Trump, who was due to pay $41 million in interests on the Castle bonds, is excused from making any cash payment -- but must give bondholders a 50 percent ownership of the casino.
Trump would still get a $1.5 million annual fee for managing the bondholders' 50 percent share in the casino.
'I am very happy the steering committee and Trump Castle have agreed to the framework of a transaction with respect to the facility which will guarantee the long-term financial stability of the Castle,' Trump said.
Failure to meet the interest payments or reach an agreement with the bondholders could have forced the Trump Castle to file for bankruptcy protection.
The casino commission had warned it would not renew Trump's gambling license unless the developer paid the bondholders or renegotiated the debt with them. The commission had timed its hearing on Trump's gambling license to follow the scheduled payment of Trump Castle interest payments.
The negotiations with the bondholders, which started several weeks ago, went through a crucial round over the weekend. Bondholders have expressed discontent with Trump's management of the casinos, but they also were reluctant to force Trump into default because their bonds might retain little value amid the depressed business environment of the Atlantic City gambling industry.
'Apparently, Mr. Trump is again able to pull another rabbit out of his hat,' said gambling industry analyst Marvin Roffman with Roffman Miller Associates Inc. in Philadelphia.
The Trump Castle bonds, totaling $338 million, were issued in two classes -- one carrying a 13.75 percent interest, and due June 15, 1997; the other carrying a 7 percent interest, due June 15, 1999.
Under the agreement, Trump will have to report a reorganization plan to the Securities and Exchange Commission by Aug. 15 and submit a final plan by Nov. 15.
The plan would call for the two classes of Castle bonds to be combined in one single issue, due June 15, 1998, and carrying 9.5 percent interest.
The face value of the bonds will be reduced to $290 million and payments of a cash portion on the interests -- to be suspended until next summer -- would resume in July 1992, at an initial low rate of 5 percent, to be raised to 7.125 percent by January 1994.
With the last-minute deal, Trump's woes, however, are far from ended because the restructuring plan is based on projected improved revenues.
'In the event the Castle's gross operating profit does not exceed specified target levels, the bondholders may cause the casino to be sold, subject to a right of first offer,' the Trump Organization also said.
The depressed gambling industry in Atlantic City has resulted in no growth in casino revenues since June 1989. Nine out of the 12 casinos in Atlantic City reported declining revenues in 1990 with the Trump Castle and the Trump Plaza the two worst losers.
The Taj Mahal, which opened in April 1990, reported a $26 million loss in the first quarter of this year.