Trump returns with new junk bond offer: dollars 375m launch a year after bankruptcy

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The Independent Online
HE'S back. Four years after being virtually run out of the high-yield debt market and just a year after filing for bankruptcy, Donald Trump is back selling junk bonds.

And, if one is to believe the promotional hype surrounding his offering of dollars 375m (pounds 247m) worth of Trump Plaza casino bonds, investors who should probably know better are dying to buy them so desperate are they for a double-digit return on their money.

As part of the deal with his creditors that allowed him to retain at least nominal control of his empire, Mr Trump remains personally liable for dollars 100m of the dollars 2bn his company owed at the time of his bankruptcy settlement.

To retire half of that obligation, he now plans to roll over the debt of his most profitable Atlantic City casino, selling new junk bonds that are actually rated lower than those they are replacing.

The lower ratings will not on their own mean that the Trump Plaza will pay more interest, thanks to the fact that prevailing interest rates are considerably lower than they were when Mr Trump floated the original debt back in the mid-1980s.

But adding dollars 50m to the Plaza's debt to pay off his personal obligations will cost the casino an extra dollars 20m a year in interest, a 68 per cent increase over this year's borrowing costs.

It will also make the Trump Plaza the most highly-geared property in Atlantic City, warns John Maxwell, a bond analyst with Standard & Poor's in New York.

The two issues - dollars 325m worth of mortgage-backed notes and dollars 50m worth of 'pay-in-kind' bonds - will add dollars 134m to the casino's total debt, increasing it to the equivalent of 6.5 times annual cash flow from just over five times.

'We are concerned that some of the debt the Plaza is refinancing with more debt wasn't its own to start out with,' said Mr Maxwell.

S&P also notes that Mr Trump's covenants with his bank creditors mean that the casino will be unable to repay the pay-in-kind bonds in cash instead of yet more debt, even if it thought that would make financial sense.

Most analysts agree, however, that the Trump Plaza is very well managed, and its renewed health is such that many investors now seem willing to suspend their disbelief with regard to most offerings bearing his name.

Despite offering documents that include 14 pages of risk disclaimers, the Wall Street Journal reports that demand for the bonds is likely to mean the mortgage bonds will yield as much as a half a percentage point lower than the 11.35 per cent advertised by Mr Trump's advisers, Merrill Lynch.