Edition: U.S. / Global

Trump Loan Plans Hit a Snag

Published: June 18, 1990

Donald J. Trump's effort to obtain $60 million in new loans has become mired in disputes among his largest bankers, people involved in the talks said yesterday.

Mr. Trump, whose real estate and casino-gambling empire is threatened by a shortage of cash, failed on Friday to pay about $73 million owed to banks and bondholders.

The developer, who is now in technical default on two bond issues, could lose control of Trump's Castle Hotel and Casino, his weakest casino in Atlantic City, if the payments are not made before a 10-day grace period expires.

Much More Is at Stake


Some people involved in the talks said that much more than the one casino was at stake. Mr. Trump could eventually lose control of much of his real estate and gambling empire, they said, if the big banks cannot agree on the terms of the loan package and induce their various syndicate groups to approve those terms.

Mr. Trump, of course, might be able to raise the cash to meet the payments before the grace period ends. He is trying to sell some of his assets, like the Trump Shuttle airline, his yacht and helicopters, and is seeking to sell a minority interest in one of his hotel and gambling operations.

But the developer may be having a hard time attracting bids, as buyers seek to protect themselves against the worst possible outcome, a bankruptcy filing. In such a case, a bankruptcy judge could repossess recently sold assets on behalf of creditors.

The banks are also seeking to protect themselves against the possibility of a bankruptcy filing.

Terms Cause Strife

The talks among the banks considering the new loans to Mr. Trump deteriorated on Saturday as the big New York banks began fighting over the proposed terms of the loan package, including how much they should each contribute and what each bank should get as collateral for its contribution. For most of last week, the banks - Citibank, the Bankers Trust New York Corporation, Chase Manhattan, and Manufacturers Hanover - seemed to agree on the new loan package.

The bankers originally proposed to lend Mr. Trump an additional $60 million, with 75 percent coming from Citibank and Bankers Trust, and to temporarily suspend some of the interest on an estimated $2 billion in bank debt.

In exchange, Mr. Trump, who has declined to comment on the situation, would have to give up some of his ownership interests in at least one significant asset and the banks would place a financial officer within the Trump Organization, the developer's main corporate entity, to represent their interests.

The central group of bankers now involved in the talks have grown to six since two New Jersey banks, First Fidelity Bancorp and Midlantic Banks Inc., joined the discussions last week. But several bankers said the two banks with the largest loan exposure to Mr. Trump, Citibank and Bankers Trust, had begun to demand changes in the terms.

''Where the problems lie at the moment is that at least some of the six banks are not willing to go along with the Trump agreement as it is constituted,'' a banker involved in the talks said yesterday. ''Everything is changing and everyone is looking to shore up their own collateral and to put in as little money as they can. Unless the six big banks are in agreement the other little banks and the foreigners are not likely to go along with anything.''

Positions Vary Among Lenders

The bargaining positions of the various banks in the talks differ substantially, according to how much money they have lent to Mr. Trump and how much of that money is secured by real estate or other assets as opposed to loans the developer personally guaranteed. These considerations mean that some banks could suffer large losses if the developer filed for bankruptcy, while others could emerge relatively unscathed.

Citibank and Bankers Trust appear to have the most to lose because they have loaned the most to Mr. Trump. Citibank has more than $300 million in loans outstanding to the developer, some of it secured by him personally. Bankers Trust is owed more than $100 million, and bankers say most of it is secured only by the developer's personal guarantee.

On Friday, bankers had reported that substantial progress had been made toward finally approving the $60 million loan package and that all the bank syndicates, except the one led by Chase Manhattan, were ready to approve the loan.

The Chase syndicate is made up mostly of Japanese banks who were balking at the plan, and so a proposal was put forward to have Citibank, Bankers Trust, and Chase buy out the Japanese banks to push the deal through.

But bankers said yesterday that difficulties within the Citibank syndicate seemed to have resurfaced and that it was unclear whether some syndicate members would go along with the new loan proposal.

On Friday, the developer defaulted on about $352 million worth of bonds by not making about $30 million in interest and principal payments.

Under a provision of the Trump's Castle bonds, the developer was required to buy back a tenth of one of the bond issues. In December Mr. Trump bought back $10.2 million in the face value of those bonds in the market, leaving his partnership with the obligation to buy back another $12.5 million on Friday.

First Fidelity, the trustee for the Trump's Castle bonds, said none of the principal payment was received.

Mr. Trump also failed to pay an estimated $30 million owed to Manufacturers Hanover, which had lent $70 million to the developer toward his down payment on Trump's Castle. A bank official said that more than half of the loan had been paid back, although he declined to say when. He said that the balance, which is secured by some of Mr. Trump's New York real estate holdings, was not paid on Friday.