Trump CEO: 'Comfortable' that Atlantic City turnaround is on track

By Paul Deckelman

New York, March 2 - The late pop vocalist Dinah Washington famously sang "What a Difference a Day Makes" - but in the case of Trump Entertainment Resorts Inc., those lyrics more correctly would be what a difference a year makes.

A year ago, the Atlantic City-based casino and hotel company - after years in which it had been hobbled by massive debt, weak financial performance and a lack of needed investment in its aging properties - was still in the throes of a sometimes-contentious bankruptcy reorganization process. Since then, it has emerged from Chapter 11 with a much-improved capital structure and ambitious plans to expand the Trump brand beyond the company's base in the seaside New Jersey resort - to nearby Pennsylvania and perhaps even to the home office of the U.S. gaming industry, Las Vegas.

The company has also since then unloaded its underperforming Indiana riverboat operation and used some of the proceeds to further improve its balance sheet.

Trump reported lower 2005 fourth-quarter and full-year losses versus a year earlier and the company's president and chief executive officer, James B. Perry, told analysts on the company's conference call following the release of the earnings results that he is "comfortable that the operating turnaround of the Atlantic City properties is on track, to meet our goal of achieving operating margins at or above industry averages in 2007."

Perry said the company was lowering its gaming cost of sales while increasing cash room, food and beverage revenues and employee productivity, and was finally making needed renovations to its Trump Taj Mahal, Trump Plaza and Trump Marina properties to allow them to better compete against newer, flashier rivals like Boyd Gaming Corp. and MGM Mirage's glitzy Borgata, located almost literally a silver dollar's throw away from the Marina.

Aiming to strengthen balance sheet

He said that the company's board "is committed to strengthening the balance sheet" so the company can continue with its plans for improving the Atlantic City properties and expanding into other jurisdictions.

The company - formerly known as Trump Hotels & Casino Resorts Inc. - entered Chapter 11 in November 2004 and, after a few changes to its reorganization plan to address objections from some of the company's stakeholders, emerged from bankruptcy on May 20 as Trump Entertainment Resorts. Under the complex reorganization agreement, the company's total load of publicly traded debt was reduced by $544 million to $1.25 billion from $1.80 billion, with the weighted average cost of debt reduced to 7.7% from 12% and a 10-year extension of the public debt's maturity to 2015. It was projected that the new capital structure would save the company $102 million in annual cash interest costs.

The cash-strapped company also got $500 million of exit financing to allow it to refurbish its properties. Its eponymous founder and chairman, Donald J. Trump, kicked in more than $55 million in new equity and contributed company debt that he held; his share of the company's equity fell to 30% from about 54% pre-bankruptcy, but the brash billionaire was spared the indignity of being told "you're fired," and was allowed to hang onto the chairman's post - while relinquishing his day-to-day role as CEO - and remaining the very high-profile public face of the company.

The Donald did not, however, take part in Thursday's conference call with Perry and chief financial officer Dale Black.

Loss narros

In the 2005 fourth quarter ended Dec. 31, Trump Entertainment Resorts reported a net loss, including discontinued operations, of $22.1 million or (73 cents per share) versus its predecessor company's year-earlier net loss of $99.8 million ($3.34 per share). On a continuing operations basis, the company lost was $26.1 million (86 cents per share) in the latest period versus $108.9 million of red ink $3.64 per share) a year earlier.

Counting just the period between last May 20, when the reorganization plan became effective and the company emerged from Chapter 11, and the end of 2005, its net loss, including discontinued operations, was $26.5 million (87 cents per share), while the net loss from continuing operations was $36.3 million ($1.19 per share). There were no comparable year-earlier figures.

Black noted that as of the end of 2005, the company's debt consisted of $1.25 billion of 8½% senior secured notes due 2015, $149.25 million of outstanding term loan debt, at a rate of 250 basis points over Libor, and $38.7 million of capital lease debt, at interest rates ranging from 8% to 20%. There were no outstanding borrowings under its $200 million revolving credit agreement; a portion of the $227 million proceeds that the company got from the sale of its Trump Indiana riverboat operation to Majestic Star Casino LLC, which closed in December, was used to pay down the approximately $40 million of revolver borrowings that were on the books as of the end of September.

Thanks to the decrease in the company's debt levels and its lower average interest rates following the restructuring, fourth-quarter interest expense fell to $32.2 million, a $25 million improvement from the $57.2 million of interest costs in the year-earlier quarter. It projects 2006 interest costs of $120 million to $125 million.

Tower construction starts in June

As part of the bankruptcy exit financing, the company also has access to a $150 million delayed-draw loan earmarked for the construction of a new hotel tower at the Taj Mahal on the Boardwalk. Perry said that construction should begin in June. Under the original terms of the credit facility, Trump was to have drawn down that loan by May 20, the first anniversary of its emergence from Chapter 11. However, the company and its Morgan Stanley & Co.-led lending group agreed in December to amend the facility, giving the company until Nov. 20 to access those funds.

Black said that "in all likelihood, we will draw the full $150 [million] in November, and really just have a bit of a negative carry for a while during the construction."

The December amendment also eased the agreement's first-lien leverage and overall debt leverage ratios.

Trump 'should' be in Vegas

Perry discussed Trump's ambitions to leverage its well-known brand name and image outside the narrow confines of Atlantic City, including in Las Vegas, where Trump plans an investment in a luxury condominium project, with an eye toward possibly getting involved in gaming there, although the CEO said it would be "unlikely" that this would happen before 2010. "The Trump brand should be in Las Vegas," he asserted.

A little closer to home, Trump was one of a number of gaming companies to file applications with Pennsylvania authorities in late December for permission to open a slot machine-only casino operation in the Philadelphia area, perhaps by 2008, and it also has been sounding out authorities in Rhode Island about the possibility of opening a casino in Johnston, R.I., by 2010, in the event that the legislature there authorizes gaming.

Black said that a Pennsylvania casino could cost the company as much as $350 million to build. Any new debt associated with the Pennsylvania project, should it come to fruition, or another new project, like Rhode Island, would be traditional "project financing" - although the ventures would be consolidated with the parent and would show up on the balance sheet. He also broached the idea that at least some of the costs of any new project "more than likely" might be funded with equity, possibly raised through a rights offering, an outright sale of newly issued stock or "from Mr. Trump himself."

He said: "We're keeping all of those options available to us."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.