Trump Entertainment Resorts Inc. (fka TRMPQ)

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Trump emerges from Chapter 11 for third time.

By Henny Sender in New York

Published: July 20 2010 01:31 | Last updated: July 20 2010 01:31

Trump Entertainment Resorts is emerging from Chapter 11 bankruptcy protection for the third time.

This time round, it is emerging with Avenue Capital, a distressed debt investment firm, holding the largest stake in the company, which controls three casino resorts in Atlantic City, New Jersey.

The restructuring eliminates $1.3bn in debt and puts an end to a messy saga. At the low point, bondholders say, the debt traded at just 5 cents on the dollar.

Still, it is not clear at this stage whether, even at a substantial discount, the new owners can revitalise the fortunes of the hotels, which, like Atlantic City itself, have seen better days.

“This is a bet on the recovery of Atlantic City, which is a ghost town today,” said the head of one distressed debt investment firm that is not involved in the deal.

Atlantic City’s travails stem largely from the expanding casino industry in the neighbouring state of Pennsylvania.

The bondholders put in $225m of new money and paid down $100m of the existing debt to gain control of Trump Entertainment Resorts.

In doing so, they thwarted a bid from veteran raider Carl Icahn, who was bidding with Texas-based Beal Bank. The bank sold a big part of the debt to Mr Icahn at a price close to par, bondholders say.

Mr Icahn had sought unsuccessfully to derail the bid from the bondholders, arguing that their projections of future revenues were wildly optimistic and he was unlikely to recover the value of his money.

The company’s founder, Donald Trump, and his daughter Ivana, chose to side with Avenue in the bitter dispute. The deal will enable the Trumps to retain up to 10 per cent of the company. (Avenue controls 22 per cent of the new equity.)

Had Mr Icahn won his attempt to gain control of the company, the Trumps had threatened to deny him the use of their name.

The sparring over the Trump assets comes at a time when many distressed funds are beginning to feel hopeful that there will be another wave of distressed debt opportunities as economic growth slows and banks on both sides of the Atlantic will finally withdraw their support for weaker companies.

Investment firms such as Blackstone and Apollo are already buying assets in Asia from banks that are under pressure, including Royal Bank of Scotland.

“Today the opportunity is in middle market companies,” said Marc Lasry, founder of Avenue. “They can’t get any money from the banks.”

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