NEW YORK -- Donald Trump missed more than $42 million in interest and principal payments on bonds for his Trump's Castle casino Friday in a serious setback to the flamboyant developer's bid to hold his empire together.
The missed payments marked the first time Trump was unable to meet obligations on the $1.3 billion in publicly traded debt that has underwritten the growth of his Atlantic City casinos and real estate holdings.
Late in the day First Fidelity Bank N.A., the New Jersey bank acting as trustee for the bonds, said it resigned to avoid appearance of a conflict of interest. The bank's major responsibility as trustee is to collect interest and principal payments.
'We lend to the Trump Organization, and we believe that represents the appearance of a conflict,' said bank spokesman Paul Levine. He refused to comment on Trump's tangled banking affairs.
The Trump Organization announced in a terse statement that principal and interest payments due June 15 on two series of bonds issued by Trump's Castle Funding Inc. to fund the casino 'are not being made.'
First Fidelity said it intended to send notice of default to Trump's Castle Funding Inc. if the payments were not received by midnight.
Trump technically has a 10-day grace period before defaulting on the bond payments for the Trump's Castle casino -- one of his three Atlantic City gaming houses.
The bank specified that $15.59 million was due in interest on one mortgage bond issue, along with $22.68 million in principal. On another bond issue financing Trump's Castle casino, interest of $4.38 million was due for a total of $42.65 million.
A default would give Trump's creditors the right to immediately lay claim to the casino.
'Any time you miss an interest payment like this, it puts you closer to going under,' said junk bond specialist Lonnie Schaffer, vice president of capital markets at First Albany Corp. 'Unless (Trump) can become friendly with all of his bankers, he's going to have a tough time of it.'
A default linked to a casino operation also could place Trump's gambling licenses in jeopardy.
Tom Flynn, spokesman for the New Jersey Casino Control Commission, declined to comment on the Trump operations. But he pointed out that another Atlantic City casino owner, Merv Griffin, defaulted on bonds payments while his properties remained open.
Trump's financial woes became public after his wife, Ivana, challenged a marital agreement that would give her a $25 million settlement in the event of a divorce. The two recently separated, although Trump celebrated his 44th birthday Thursday with his wife.
The Trump Organization, in an attempt to reassure investors, said negotiations were 'ongoing with lenders to obtain additional financing and restructure certain of its outstanding debt.'
The statement also said payments on bonds for Trump's two other Atlantic City casino ventures -- The Taj Mahal and the Trump Plaza -- had been met on their respective May 15 and June 15 due dates.
Immediately after the Trump announcement, Moody's Investors Service Inc. downgraded about $925 million of Trump's long-term debt for bonds issued to finance the Taj Mahal and the Trump Plaza, saying a 'default could occur on the outstanding bonds in November.' The Taj Mahal bonds now carry a CAA rating that indicates major risks for investors.
Trump's principal lenders -- Citicorp, Bankers Trust New York, Chase Manhattan and Manufacturers Hanover -- agreed June 10 on a $2 billion bailout plan that would buy much-needed time for the overextended dealmaker to restructure his empire and sell some of his prized New York real estate and the Trump Shuttle airline.
But banking sources said Citicorp, owed more than $300 million by Trump, has failed so far to get smaller banks in the syndicate it leads to agree to the deal, which would involve lending the developer another $60 million.
First Fidelity Bancorp and Midlantic Banks Inc., two Newark, N.J., banks that did not take part in the June 10 agreement, have not yet decided whether to accept a suspension in some interest payments in exchange for increased collateral and a stake in some of Trump's properties.
A spokeswoman for First Fiedlity declined to say whether negotiations were still taking place. Midlantic officials were not available for comment.
Many analysts had predicted Friday would be a turning point for the crumbling Trump empire, valued at $1.7 billion last year and now believed to be worth only about $500 million.
Before the announcement, the American Stock Exchange halted trading on three classes of Trump gambling empire bonds for the Castle and the Taj Mahal.
After trading resumed at noon, Trump's bonds were lower. Trump Castle's 13.75 percent bonds, due in 1997, were down 1.875 points to 58.125. Trump Castle's 7 percent bonds, due in 1999, were down 1 to 36 -- in effect selling for only 36 cents on the dollar.
Trump Taj Mahal 14 percent bonds due in 1998 were down 2 points to 53.50, reflecting the feeling of many investors that Trump's problems were only beginning.
He has failed to attract buyers for the properties he recently put on the auction block, including his Trump Princess yacht, valued at $40 million, the Trump Shuttle with an estimated $350 million pricetag, and New York's famous Plaza Hotel, worth around $400 million.
