The following is an excellent excerpt from the book “LOST TYCOON: The Many Lives of Donald J. Trump” by Harry Hurt III from Part Three: “Best Sex Ever Had” from Chapter 10: “Bankrupt Billionaire” on page 328 and I quote: “Fred Trump, Sr., is sitting in Donald’s office, staring at his son in disbelief. The banks are ready to provide a bridge loan to cover Trump Castle’s upcoming bond payment. There is just one hitch. In return for lending Donald more money, they want more security–to wit, a mortgage on his father’s ten thousand units of rental properties in Brooklyn and Queens. Although Donald does not like the idea, he is running out of options and time. According to reports that Donald denies, he decides to ask his old man for help. But Fred Trump, Sr., refuses to get stuck to his son’s financial tar baby without exacting even tougher concessions from his son than the banks will.
“I’ll help you out,” he tells Donald, “but only if you go back to Ivana.”
Donald rejects his father’s offer. He then turns to–or, rather, turns on–his younger brother, Robert, and his older sister Elizabeth. These two siblings are still living in apartments he lets them use in Trump Plaza on Third Avenue. Donald decides that their free ride should be over in light of his banking crisis.
“I want you to evict Robert and Elizabeth,” he orders executive vice-president Blanche Sprague. “Make them buy their apartments for cash or I’m going to throw them out. I’m having all these financial problems. Why shouldn’t Robert and Elizabeth contribute?”
Sprague refuses to carry out the eviction order. Instead she writes a memo estimating the market value of Trump Plaza units 36C and 36B, which Robert and his wife, Blaine, occupy, and units 21C and 21D, which Elizabeth occupies with her husband, Jim Grau, then wisely leaves any further action to her boss. But before Donald can act on his eviction threats, there is a breakthrough in the behind-the-scenes bank negotiations.
By Monday, June 11, it looks as if Citicorp, Chase Manhattan, Manufacturers Hanover, and Bankers Trust have reached a tentative accord. They will lend Donald $60 million , much of which will be used to make Trump Castle’s $43 million bond payment due on June 15. The banks will also suspend interest payments on some $2 billion worth of loans. In return, they will get mostly second mortgages on Trump Tower, Trump Plaza in Atlantic City, and other indebted properties. At their behest, Donald will also hire a chief financial officer from outside the Trump Organization to help put his house of cards in order.
But Donald’s four lead banks cannot simply sign off on the accord by themselves. They have syndicated his loans (for which they received lucrative fees and simultaneously reduced their individual exposure) to no fewer than fifty-four other domestic and foreign banks. Each of these banks has to give its consent or the deal will not work. And by midweek several of the smaller banks start balking. First Fidelity of New Jersey, for example, has $75 million lien on the Taj Mahal; its claim is secondary only to the first mortgage on the property held by the casino’s bondholders. Under one of the big banks’ proposals, all of Donald’s assets would be put in a single pool; with each of the banks splitting the proceeds from any future sale. But that cross-collateralization plan would only erode First Fidelity’s claims on the Taj by putting it in the same boat as other creditors.
On Thursday, June 14, which happens to be Donald’s forty-fourth birthday, the negotiations hit another major snag. The big banks now demand not only that he hire a chief financial officer but that he also hire a chief executive officer from outside the Trump Organization. That would effectively remove Donald from the driver’s seat of his own empire. Donald lets it be known that he will not stand for what amounts to an executive coup d’etat. He then threatens to declare bankruptcy.
It is a bold ploy–and something of a bluff. Donald clearly does not want to suffer the embarrassment or run the legal risk of filing Chapter 11. But the banks are even more daunted by the prospect. If Donald were to file for bankruptcy, his empire would be put under the supervision of a trustee who would tell him and his creditors what assets to sell as well as who would get what shares of the proceeds, a scenario that would put all his lenders at the mercy of the court. The legal bills would be exorbitant, and the time involved could easily run four years or longer.
On Friday, June 15, Trump Castle fails to make the $43 million payment due its bondholders. There is still hope. The bond covenants provide for a ten-day grace period before Donald would be technically in default and faced with losing the casino to his bondholders. The official foreclosure deadline is 12:01 A.M. on June 27. But time is running out. Even though Donald’s representatives and the banks continue to negotiate through the weekend, the parties make no public announcement that their talks are progressing toward a resolution.
On Saturday, June 16, Donald celebrates his forty-fourth birthday with a lavish party at Trump Castle in Atlantic City. The guests, most of whom work for the Trump Organization in some capacity, are understandably nervous about their boss’s financial situation. In an effort to allay their concerns, the birthday boy rises to make a short speech.
“Over the years, I’ve surprised a lot of people,” Donald reminds his well-wishers. “The largest surprise is yet to come.”
He is right about that. One of the first surprises to emerge in the media over the next few days is the news that Donald has personally guaranteed $500 million in loans. In addition to the already highly publicized $75 million note on the Taj held by First Fidelity, the loans include $15 million on the Trump Shuttle, $125 million on the Plaza Hotel, and $60 million on Trump Palace, all of which was borrowed from Citicorp. Bankers Trust has another $100 million worth of personally guaranteed loans. In the event of default, Donald would be held responsible for satisfying the full amount of his indebtedness even if the properties were sold off for less than what he owes.
Equally surprising to many Trump watchers in the media is the news that Donald’s bankers do not see a light at the end of his financial tunnel. He has tried to give the impression that the $60 million bridge loan under negotiation will solve what is merely a short-term problem and that the Trump empire will remain intact and once again become profitable. But the banks believe Donald is already on his last legs. “The misconception people have is that the $60 million would give Trump time,” one participant in the negotiations tells Neil Barsky of the Wall Street Journal. “In fact, it is the banks who bought time to have an orderly sale of his assets.”
Donald’s reaction is perhaps even more surprising. Instead of churning out mounds of disinformation, as he has done in past crises, he withdraws from public view for most of the ensuing week. He spends day and night inside Trump Tower, either behind his office desk on the twenty-sixth floor or in the apartment formerly reserved for his father on the sixty-third floor. He lets his already shaggy locks grow longer and longer and starts gaining weight from a diet of pastrami sandwiches his bodyguards picks up from Wolf’s deli on Sixth Avenue.
Donald’s behavior recalls the eccentric reclusiveness of the late billionaire Howard R. Hughes, whom he regards as a kind of personal hero and role model. He has isolated himself from his wife, his children, and even his old man. The only person who seems to be staying faithfully by his side is Marla Maples, who tries to calm his troubled soul by reading to him from the New Age philosophical teachings of Emmanuel’s Book. But not even Marla can arrest Donald’s downward mood swings. At one point he even talks about suicide.
“If I lose you,” Donald tells Marla amid the depths of his depression, “I have nothing else to live for.”
There is good reason for Donald to feel down and out. Unlike his four lead banks, the smaller domestic banks such as First Fidelity and Midlantic are not willing to join in a creditors’ pool. Neither are similarly situated banks based in Japan, South Korea, Brazil, Ireland, Italy, France, and Germany, which hold first mortgages on various Trump real estate properties. They do not want to end up paying for a disproportionate share of the bad loans made by the larger banks. Finally, Citicorp Vice-Chairman Lawrence Small and Chase Manhattan Vice-Chairman Robert Douglas decide to take a cue from Donald. They use the threat of a Trump bankruptcy filing as a bludgeon to get the recalcitrant creditors in line.
By Wednesday, June 20, with Trump Castle’s foreclosure date just six days away, First Fidelity and most of the other domestic loan partners agree to the asset pooling plan proposed by the big banks. Many of the foreign banks, however, are still holding out. Four of them–Dresdner Bank of West Germany and Sumitomo, Mitsubishi, and Dai-Ichi Kangyo of Japan–share portions of a $75 million first-mortgage loan on Trump Tower. They demand that Chase Manhattan, the lead bank on the Trump Tower loan, but out their first-mortgage positions so that their loans will not be tied to the uncertain fate of the Trump empire as a whole.
On Thursday, June 21, representatives of Chase Manhattan meet with representatives of the four foreign partners on the Trump Tower loan in hope of making them see the light. Once again, Chase officials raise the threat of a Trump bankruptcy, which would put all of the creditors at the mercy of a court-appointed trustee regardless of whether they hold first or second mortgages. According to one participant in the talks, Chase tries to make the foreign banks realize that “mutual cooperation is better for them, and without them the deal doesn’t work.”
But the four holdout banks still refuse to budge. Two more foreign banks–Yasuda Bank and Trust Company and Societe General de Financement du Quebec–which share in a $200 million first-mortgage loan on the West Side yards property, decline the invitation to join the proposed creditors’ pool. So do several of Citicorp’s foreign and domestic partners in the Trump Shuttle, Plaza Hotel, and Trump Palace loans.
True to his word, Donald surprises everyone concerned by stepping into the breach. In his first book, The Art of the Deal, he outlined eleven rules for success in business and in life. Since the book’s publication in the fall of 1987 he has violated almost all his own dicta, especially the one that cautions: “Protect the downside and the upside will take care of itself.” Now he appears ready to heed his own advice, in particular the rules that urge “Use your leverage” and “Fight back.”
On Friday, June 22, Donald breaks a weeklong public silence by announcing that he and his bankers are “very close to striking a deal. “An overwhelming number of the participating lenders, representing both national and international financial institutions, have now joined the major banks in supporting our plan,” he maintains in an official statement released by the Trump Organization.
Then, after a weekend of frustrated attempts at compromise, Donald turns on his famous charm. On the night of Monday, June 25, with Trump Castle’s foreclosure deadline a little more than twenty-four hours away, he personally lobbies the recalcitrant foreign banks to cooperate with the four lead banks. His wiles work on Citicorp’s partners and on Chase’s partner Societe General. According to one insider, they are persuaded by “Mr. Trump’s grasp of his financial situation and his confidence in turning it around.”
Donald’s optimism does not impress the Dresdner Bank, the single remaining holdout. Without its cooperation the proposed $60 million bailout plan cannot work. Again, the big banks take their cue from Donald’s own negotiating tactics. On Monday night Citicorp Vice-Chairman Small and Chase Vice-Chairman Douglas make personal transatlantic telephone calls to top Dresdner officials. The American bankers remind their German counterparts of the debtor-friendly nature of U.S. bankruptcy laws. More ominously they also threaten to exclude Dresdner from participation in future loans to other major customers. Faced with a potential loss of overseas business amounting to hundreds of millions of dollars, the Dresdner officials reluctantly capitulate.
On Tuesday, June 26, Donald J. Trump is born again. He and his bankers agree to a comprehensive five-year plan that is, for all interests and purposes, an out-of-court bankruptcy proceeding. The first phase of the so-called credit and override agreements calls for a $20 million bridge loan to enable him to make the Trump Castle bond payments. That loan will eventually be replaced with a $65 million loan whose proceeds will be used for working capital requirements. The banks also agree to let Trump forgo interest payments on another $2 billion in loans for up to five years.
In return for their lending largess, the banks extract some major, and rather embarrassing, concessions from Donald. Although he will not have to cede authority over his empire to a new chief executive hired from outside, his creditors remain firm in their insistence that he hire a chief financial officer mandated to trim the fat from Trump Organization operations. Donald’s new CFO will be required to help the banks sell off almost all of his cash-consuming trophy properties, including his yacht, his helicopter, and the Trump Shuttle.
Finally, and most embarrassingly the banks insist on putting Donald on a spending allowance. Under the plan, his personal expenditures will be limited to $450,000 a month for the remainder of 1990, $375,000 a month for 1991, and $300,000 a month for 1992. These spending limits, however, do not apply to upkeep and interest payments on his Mar-a-Lago estate, which total nearly $2 million a year, or to the interim maintenance of the Trump Princess and his Boeing 727. Also exempt for spending limits are payments on legal bills, which amounted to $10.75 million for the bank bailout alone, according to Casino Control Commission documents.
On June 26 Donald spends the hours between 9:00 A.M. and 3:00 P.M. in the offices of Wachtell, Lipton, Rosen & Katz, the law firm representing Bankers Trust. During that period he signs off on more than twelve hundred pages of documents relating to his bailout agreement. When he is done, he expresses his gratitude in a statement the Trump Organization releases to the media:
“I want to thank all of my banks and lending institutions for making this complex and highly technical agreement possible. I have gained a deep respect for the banking system and those who make it work. . . . this agreement allows the Trump Organization to go strongly forward and reflects and confirms the inherent long-term value of our assets, including Trump Tower, the Plaza Hotel, the Atlantic City hotels, and the Trump Shuttle. The agreement demonstrates the confidence of the banking group in the company’s ability to maximize the value of those assets.”
Privately Donald can hardly contain his gloating. He believes, not without reason, that he has pulled off another coup in his bank negotiations. As he later points out in an interview, he has pioneered another trend. “I’m the only one that worked out a deal with the banks,” he boasts. “You know every developer in New York, most of them, are in worse shape than I am.”
Donald is not far wrong. Over the next twenty-four months several high-profile tycoons, including the Reichman brothers of the Olympic & York real estate empire, and developer-publisher Peter Kalikow will wind up filing for some form of bankruptcy protection. But unbeknownst to the banks or the general public, Donald’s financial problems are by no means permanently resolved. That will become clear when the first comprehensive audit of his portfolio is completed by Kenneth Leventhal & Company in late summer. But ominous signals are already emanating from the airline branch of his empire.
On June 29, barely three days after striking his bank deal, Donald fires the Trump Shuttle president, Bruce Nobles, complaining through a spokesman that Nobles just “couldn’t cut it.” The facts speak to the contrary. During Nobles’s thirteen-month-long tenure, the Trump Shuttle has made a remarkable turnaround, rising from a 12 percent market share vis-a-vis the Pan Am Shuttle to a 49 percent share. But because of the burden of some $400 million in debt, the Trump Shuttle has yet to turn a net profit. In fact, it shows a loss of more than $90 million.
Like the Pan Am Shuttle, the Trump Shuttle has been on the selling block for months. Prior to his dismissal Nobles admitted to the Wall Street Journal that despite shows of interest, he had received no formal offers to buy the Trump Shuttle. Donald was furious. “Why are you saying that?” he demanded. “Because it’s true,” Nobles replied. “Look, I’m trying to sell,” Donald stormed. “I don’t want people to think there’s no interest.” According to former insiders, this incident led to Nobles’s departure.
Donald immediately replaces Nobles with former vice-president Richard Cozzi. The change in presidents does not change the airline’s profit-making prospects. In an interview with the New York Times, Cozzi predicts that overall ridership on both the Pan Am Shuttle and Trump Shuttle will drop from 4 million passengers a year to 3.6 million passengers a year and blames the decline on the sagging northwestern economy. In late August, after signing final closing papers on his deal with the banks, Donald will take the Trump Shuttle off the market, claiming that the debt relief he has gotten will enable the airline to turn a profit. But by that time Iraqi dictator Saddam Hussein will be launching an invasion of Kuwait, and oil prices will be shooting up from $20 a barrel to more than $30 a barrel, imperiling the future of even the strongest air carriers.
In the meantime, Donald rushes to rewrite his second book, Trump: Surviving at the Top, so that it will include the outcome of his bank negotiations. As he admitted at the American Booksellers Association Convention, there are still a lot of question marks about what his future holds. This is especially true in the case of his ongoing negotiations with his estranged wife.”
(THE FOLLOWING IS FROM THE INSIDE FRONT COVER AND I QUOTE:
“From the secret demolition of the Bonwit Teller landmark with illegal Polish labor to the shootout in Aspen between Ivana and Marla, from glimpses of a fiercely competitive family background to details on Donald’s frenzied pursuit of money and beautiful women, Harry Hurt’s explosive narrative combines tough investigative reporting and celebrity gossip: it is the perfect vehicle for exploring every last corner of Trump’s empire, from the boardroom to the bedroom. With unprecedented access to court records, Trump Organization sources, and interviews with The Donald himself, the author constructs a glittering portrait of greed, scandal, and blind ambition. His book is all the more timely in view of Donald’s boast, echoed in the financial press, that he is on the verge of an astonishing comeback in the nineties.”
Lavern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran