Trump's Long-term Troubles

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DONALD TRUMP finally won his financial reprieve - but at no small cost. The New York developer who perhaps more than any other entrepreneur symbolized the unbridled financial go-go days of the 1980s will now have to stick to a relatively Spartan business restructuring plan, including adhering to a tight personal budget, that will be closely monitored by his creditors. Mr. Trump will receive an interim cash infusion of about $20 million, allowing him to satisfy current obligations, while creditors work out a longer-term $65 million debt bailout. Granted, winning a new allowance of millions of dollars hardly seems like much of a hardship for most of us who must punch a time clock each day, or battle traffic jams just to get to work.

But for someone used to touting multibillion dollar deals, having to answer to bankers/creditors must seem like the ultimate indignity. Trump will still face long-term challenges, despite the new infusion of capital. Hotel vacancy rates tend to be consumer sensitive, reflecting the ups and downs of the overall economy. And the casino business, which is one of Trump's main sources of revenue, tends to slow in late fall and winter.

Moreover, a New Jersey superior court judge ruled recently that a rival of Trump in Atlantic City could bring a suit for what the rival claims was illegal antitrust action by Trump. The tycoon could face treble damages of up to $600 million.

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What happens to Donald Trump, of course, is hardly inconsequential. Besides the casinos, Trump's vast empire includes major hotels, the Trump Shuttle, undeveloped land holdings in Manhattan, and thousands of employees.

But Trump's down-to-the-wire bank negotiations this past week, financial experts note, clearly underscores the long-range problems with debt-leveraging involving multibillion deals - i.e., heavily mortgaging one asset to finance the purchase of another, or financing developments through issuance of junk bonds.

Trump, of course, is not the first person to run into difficulties from extensive debt financing. Earlier this year the Campeau Corporation, the largest retailing operation in North America, filed for bankruptcy protection. And just recently Garfinckel's, once the most prominent retailer in the Washington, D.C., area, filed for bankruptcy and announced that it plans to close at least seven stores.

Still, Trump draws unique public scrutiny, in part because he had become one of the most flamboyant promoters of the get-rich corporate fervor of the 1980s. But as the new agreements with his creditors underscore, the Trump empire had become overextended.

For now at least, the type of multibillion leveraged financing deals symbolized by Trump seem to be on hold in banking circles and corporate front offices. Trying to build a business empire on the use of extensive debt now seems a shaky proposition at best.

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