Trump’s casino-hotel business empire has declared Chapter 11 bankruptcy, also known as a reorganization bankruptcy, four times since 1991. Each time, he has managed to bring his empire back from the brink of destruction and shed billions in debt. Trump himself has never filed for personal bankruptcy.
However, despite the tendency of his political foes to use Trump’s history of bankruptcies as a starting point to question both his business acumen and his abilities as a leader, the reality is that successful businessmen sometimes use bankruptcy as a tool to protect their business during financial downturns.
Filing for Chapter 11 Bankruptcy
Chapter 11 bankruptcy was designed specifically for situations such as those facing Trump each of the four times he filed for bankruptcy. The purpose of Chapter 11 is to allow business to remain open while reorganizing their debt while also working with creditors to reduce or eliminate that debt. The basic idea is to allow businesses which are facing crushing debt the opportunity to keep their workers employed and cash flowing into the business while they work towards a debt solution.
Trump’s first trip to the bankruptcy court was in 1991 and involved the Taj Mahal casino in Atlantic City. This initial bankruptcy is also believed to have been the most personally painful to him, and the only time his personal fortune was at risk. Trump had largely financed construction of the casino with so-called ‘junk’ bonds just as the nation was entering a recession and interest rates were skyrocketing. This financing decision left the project billions in debt.
Trump was also carrying a personal liability of as much as $900 million as part of the project. As part of the bankruptcy settlement, he was forced to sell his 282-foot personal yacht and the Trump Shuttle, which ran commuter flights between Washington, D.C., New York City and Boston in order to make payments on the debt. He was also required to give up half of his ownership stake in the Taj Mahal.
The Atlantic City Casinos and Trump Plaza Hotel
Less than a year later, Trump was back in bankruptcy court for his other Atlantic City casino projects. This bankruptcy filing involved the Trump Castle Casino Resort and the Trump Plaza Hotel and Casino, both in Atlantic City, as well as the Trump Plaza Hotel in New York City. At the time of the filing, Trump owed an estimated $550 million on the Trump Plaza Hotel and Casino. As part of the settlement, Trump gave 49 percent ownership of the property to his largest creditor, Citibank, and was in return given a lenient repayment plan. Trump was allowed to stay on as CEO of the corporation -- Trump Castle Associates -- but was not allowed to collect a salary for the position.
Operating under the corporate name of Trump Hotels and Casino Resorts, Trump made his third trip to bankruptcy court in November, 2004. The corporation owed creditors an estimated $1.8 billion dollars. As part of this settlement, Trump agree to give up all but 25 percent of the company, ceding controlling interest of the company to creditors but keeping control of the casino business. He also remained the single largest shareholder in the company. By the following May, the company had shed $500 million in debt and had emerged from bankruptcy.
Trump’s latest bankruptcy filing was in 2009, after Trump Entertainment Resorts missed a $53.1 million bond payment. This was the end of Trump’s involvement in the Atlantic City casino business. Although his name remains on three casinos in the city, he resigned from the company’s board and gave up his interest in those casinos.
However, the results speak for themselves – Trump’s businesses have survived, and, in many cases, emerged from bankruptcy reorganization stronger and more financially secure than ever. Businesses were saved, and jobs were saved.
Bankruptcy gave Donald Trump the fresh start he needed, as it has done for many other businesses, celebrities, and for people struggling to make ends meet.
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