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   Investment Thoughts - Capital Markets
Donald Trump on Wall Street
There are so many different aspects of Donald Trumpís life that we could talk about, but the focus here is on Trumpís two publicly traded companies, Trump Hotels & Casino Resorts Inc. and Trump Entertainment Resorts, Inc.

Global Financial Data includes information on thousands of businesses that entrepreneurs have created during the past two centuries, and two of these were run by Donald Trump. There are so many different aspects of Donald Trumpís life that we could talk about, but the focus here is on Trumpís two publicly traded companies, Trump Hotels & Casino Resorts Inc. and Trump Entertainment Resorts, Inc.

Making Atlantic City Great Again

After Atlantic City made gambling legal, Donald Trump got his casino license from the New Jersey Casino Control commission on March 15, 1982 and purchased hotels from Holiday Inn, Hilton and Resorts International which became the Trump Taj Mahal, Trump Plaza Hotel and Casino and Trumpís Castle Hotel Casino. The Taj Mahal Casino opened in Atlantic City in 1990 at a cost of $1.1 billion. The hotel was financed with $675 million in junk bonds paying 14% in interest.

Trump established Trump Hotels and Casino Resorts in 1995, granting it ownership of Trump Plaza, sold the Trump Taj Mahal to the company for $890 million and sold the Trump Castle for $485 million.†† The company also looked into opening casinos in Detroit and Kansas City and opened casinos in Coachella, California and in Gary, Indiana.

On June 7, 1995, Trump Hotels and Casino Resorts went public, issuing 10 million shares at $14 using the symbol DJTC (Donald J. Trump Casinos) with Trump maintaining a controlling 56% interest. At first, the stock did well, reaching a high of $34 on June 5, 1996, giving the company a capitalization of $800 million, but there was just one problem.† The company didnít make any money.

There wasnít a single year of the companyís operation in which it made a profit, and the shares steadily declined in value as the losses piled up. By March 2005, shares were trading at 75 cents, and shareholders had lost over 95% of their investment.†† A chart of Trump Hotels & Casino Resorts, Inc. is provided below shows the nine-year decline in the price of its stock.

Trump Hotels & Casino Resorts, 1996-2005

Although the company earned a gross profit each year, it had about $1.8 billion in outstanding debt, generating around $220 million in interest expenses. After losing money for ten years in a row, the only solution was a restructuring of the company.

The 88 Cent Solution

Morgan Stanley was chosen as the lead arranger to provide the company with additional $500 million in financing under the restructuring in which Trump reduced his interest in the company from 56% to 27%. Under the bankruptcy agreement, shareholders in Trump Hotels & Casino Resorts received 0.001 share in the new company, Trump Entertainment Resorts, Inc., 0.1106736 Class A Common Stock Purchase Warrant and 88 cents in cold cash.† Virtually every shareholder lost money.

The Class A Warrants allowed its holders to buy shares in the new company, Trump Entertainment Resorts, at $123.74 per share.† Given the fact that shares in Trump Entertainment Resorts started trading at $14 on May 23, 2005, it doesnít require a CFA degree to figure out the ultimate fate of these warrants.

Although the restructuring cut interest expenses in half to around $130 million, the company still couldnít cover its costs. Trump Entertainment Resorts lost money in every year of its existence.† Between the two companies, they managed to lose money for 15 years in a row and never once made a profit.†

As illustrated below, Trump Entertainment Resorts shared the same experience as its predecessor.† At first, the share price increased in value, rising from $14 t0 $21 on August 1, 2005, but as it became clear that the company would continue its loss-making ways, the price of the stock began to decline until the shares traded for pennies.† The company filed for bankruptcy in February 2009 with $1.2 billion in debt.

There were two groups competing for ownership of the company in bankruptcy court.† One group of bidders was led by Andrew Beal and Carl Icahn while the other was led by Avenue Capital Management. Trump announced that he would oppose the Beal/Icahn group if they tried to use his name on the casinos. The bankruptcy court eventually sided with Trump and Avenue Capital Management and gave them ownership and the right to reorganize the company.

On July 16, 2010, shares in Trump Entertainment Resorts, which were trading at 1 cent, were delisted and ceased to trade. Shareholders lost everything.† On the other hand, if shareholders had put their money in an S&P 500 index fund between 1995 and 2010, they would have doubled their money. Instead, they were penniless.† A graph of the stock is provided below.

Trump Entertainment Resorts, 2005-2010

†The Third Times a Charm

Although Donald Trump never declared personal bankruptcy, his businesses filed for Chapter 11 bankruptcy protection seven times between 1991 and 2014. The bankruptcies included four of his hotels, the Trump Taj Mahal (1991), Trump Plaza Hotel and Casino (1992), Plaza Hotel (1992), Trump Castle Hotel and Casino (2004) as well as both of his publicly traded companies, Trump Hotels and Casino Resorts, which filed for bankruptcy in 2004 with $1.8 billion in debt and Trump Entertainment Resorts which filed for bankruptcy in 2009 with $500 million in debt.

During the 13 years that Trump ran Trump Entertainment Resorts, the company lost over $1.1 billion and wrote down or restructured $1.8 billion in debt.† Between 1994 and 2010, Trumpís company lost over $1.8 billion. Trump Hotels & Casino Resorts paid out $1.96 billion in interest during its ten years in existence and Trump Entertainment Resorts paid out $920 million in interest according to its financial filings.

Trump Entertainment Resorts sold off some of its assets to reduce its debt load, but this was insufficient to save the company. It sold the Spotlight 29 Casino in Coachella, California in 2005, the Majestic Star Casino in Gary, Indiana for $253 million in 2005, and the Trump Marina in Atlantic City to Landryís Restaurants in 2011.† The Trumpís World Fair Casino was closed in 1999 and demolished in 2000. Harrahís at Trump Plaza was closed on September 16, 2014, and on October 10, 2016, the Taj Mahal closed down after losing money for its owners for 25 years.

Nevertheless, the company still failed to make a profit. The company filed for bankruptcy a third time in September 2014 and exited bankruptcy in February 2016.

Whether Trump goes public with any companies in the future remains to be seen, but if he does, only the short-sellers will be happy.

www.globalfinancialdata.com

Global Financial Data, October 12th 2016-Dr. Brian Taylor

08.11.2016


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