Classic Debt Restructure: This time by Donald Trump

I know Donald Trump is controversial, but he's doing what a lot of people are doing in this downturn. Effectively buying their debt at a discount and reorganizing.

Long ago (college days), I read about this company whose debt was being hammered to around 20 cents on the dollar (can't remember the exact value). This story also happened to be in Forbes magazine. All the ratings agencies and pundits were saying how it was going to go bankrupt. The administrative leadership ended up finding a financial backer and they ended up buying a significant portion of the debt in the open market. By the time the current bondholders realized this, it was too late. In the end, the company effectively reorganized their debt at a discount.

Now Donald Trump, his daughter and a bank have done the same thing with the Trump Entertainment Resorts which operates casinos in Atlantic City. The company has been in bankruptcy for the third time and Donald et al placed the winning bid of $100 million to buy it and take it out of bankruptcy.

It is listed as having $2.06 billion in assets and $1.74 billion in liabilities. Equity equals about $320 million. The deal in the end will shrink the $486 million. They ended up converting their debt for $0.279 on the dollar.

That'll make things easier on the cash flow.

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