In A Slump, Trump To Get Allowance Under Banks' Plan
By David Johnston, Inquirer Staff Writer
Inquirer staff writer Barbara Demick contributed to this article
Posted: June 25, 1990
ATLANTIC CITY — Bankers are taking such complete charge of Donald Trump's business and personal finances that they are putting him on an allowance, confidential documents made available to The Inquirer show.
The documents, dated Friday and made available over the weekend, show that as conditions for lending the erstwhile King of Cash $65 million more to ease his cash crunch, the banks will name two executives to run the Trump empire, bar him from moving money among his companies without the banks' permission, and limit him to a $450,000 allowance for "personal and household spending."
By the way, that's $450,000 per month, not per year.
The $5.4 million personal budget for this year results from a month of hard, dawn-to-dusk negotiations with lenders. Imagine what the Trump lifestyle must have cost before fortune left The Donald at the mercy of his bankers.
More than 50 banks from Newark, N.J., to Dresden, East Germany, to Tokyo are demanding radical spending cuts, both in Trump's personal life and his business empire.
Trump is submitting to the bankers' financial shackles because he cannot come up with enough cash to pay interest on more than $3.3 billion he borrowed
from banks and junk-bond buyers.
By making new loans, the banks hope to get past the immediate financial crisis, giving them time to sell off unprofitable pieces of the Trump empire at better than fire-sale prices.
In effect, Trump is engaged in a privately negotiated bankruptcy at which the banks are presiding. When an accord is reached, and if the downsized Trump Organization can then pay its bills, Trump will have escaped the onerous
financial and emotional consequences of having a U.S. Bankruptcy Court judge liquidate his assets. Indeed, the developer who says that deals are his art is likely to emerge from successful negotiations wealthy, though not fabulously so.
Ten days ago, Trump defaulted on $325 million of Trump Castle Casino Resort mortgage bonds. He has until tomorrow to cure the default without risk that bondholders can force the casino into bankruptcy court. Sources familiar with the talks expressed optimism yesterday that the $22 million principal payment plus $20 million in interest would be made by tomorrow or perhaps within a few days.
While Trump and his bankers have yet to reach an accord, a statement he issued Friday indicated that the final terms will be the same or only slightly different. "The banks we have been working with are very close to coming together in support of a restructuring plan," Trump said in the statement.
Trump and the banks have also agreed that in years to come the Trump lifestyle must be drastically scaled back.
This year's $5.4 million personal allowance will be cut to $4.5 million next year and $3 million annually starting in 1992. Trump will be required to produce receipts for all personal and household expenses.
That is certain to put a serious crimp in a free-spending lifestyle that included a 284-foot yacht that he has said is too small, a Boeing 727, a helicopter and a Florida mansion with 118 rooms.
Interest payments and upkeep on his Florida place, Mar-A-Lago, cost about $2 million a year - and it is his third home. He also has a Trump Tower penthouse and a Connecticut mansion.
Obviously some of these trophies will have to go. The Trump Princess yacht, the jet and the copter are for sale. Trump has insisted in interviews that he would never sell Mar-A-Lago, but that was before the bankers encamped in his office last month.
He also will get a salary, not to exceed $200,000. The documents suggest that the salary is an annual figure, but it may be monthly, in which case he would receive up to $2.4 million per year, before taxes, that he could spend without requiring the approval of his bankers.
There is no provision listed for cost-of-living increases, and the tentative agreement bars Trump from receiving fees for being a director of any of the dozens of corporations and partnerships solely owned by him. He cannot be paid bonuses, not even for outstanding performance.
Trump Organization executives would be limited to $300,000 salaries or fees under personal service contracts. This is far less than several are believed to receive now. The only relative who could be on the Trump Organization payroll, the summary states, is Trump's brother, Robert, who is one of the top executives.
The salary limits do not appear to apply to operating companies such as Trump's casinos and the Plaza Hotel in New York, which is headed by the developer's estranged wife, Ivana. When Trump appointed her he said she would be paid "one dollar and all the dresses she can buy."
On the business side of the negotiations, the banks have agreed to let Trump go into the casino business in Las Vegas, provided there is outside financing they deem acceptable.
But banks also have demanded concessions, and the nature of them, as revealed in the documents, shows that like many entrepreneurs, Trump operates his umbrella company without strong financial controls and little or no long- range planning.
One provision, for example, requires Trump to "install and maintain a system of accounting controls and business planning, including appropriate staffing, by no later than Sept. 30, 1990."
He also must obtain an "unqualified" audit from Kenneth Leventhal & Co., a Los Angeles accounting firm noted for its expertise in dealing with troubled real estate firms. An unqualified audit means that the accountants have no reservations about the financial position stated on Trump's books.
The negotiating documents, including an eight-page summary of promises Trump agreed to as conditions for the new loans, indicate interest on new bank loans will cost Trump the prime rate plus 1 percent.
The summary's listing of requirements for how, what and when Trump must report to his bankers takes up 2 1/2 typed pages.
According to the documents, Trump will not be allowed to transfer money among the dozens of legally separate but economically linked companies that are solely owned by him without the written permission of the banks. Likewise, he will not be allowed to sell assets, sign leases or take on new debt without the banks' permission.
The banks also are requiring that he maintain certain bank balances. If his businesses generate more cash than expected, the extra money must be turned over to the banks.
The banks will name a chief operating officer and a chief financial officer for the Trump Organization, which oversees Trump's three Atlantic City casinos, the Trump Shuttle airline and his real estate. Each of the Trump operating companies, such as he Trump Shuttle, also must have a financial officer approved by the banks.
Within 90 days after the Trump Organization chief financial officer is named, or by the end of this year if that is sooner, Trump must give the banks reports "detailing short-range plans to achieve savings" or to eliminate all red ink. An alternate plan also must be prepared.
By each Nov. 30, Trump must provide a procedures report detailing how each of his companies will operate in the following year.
The banks want such intense reporting that every 90 days, Trump, the chief operating officer to be named by the banks, and the chief executive and chief
financial officer of each Trump entity must certify in writing that they are meeting the financial goals set down by the banks.
Any Trump entity not generating as much cash as expected must produce a detailed report every 30 days explaining why.
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