Trumps Triumphs
Paul Reichmann made a huge error: He let his ego get in the way of his financial recovery. I remember the day I knew his end would come. I picked up the paper and read a "death knell" story about O&Y (Olympia & York, Reichmann's empire), and Reichmann was quoted, saying O&Y still had a net worth of $5billion. First of all, this probably wasn't true. Second, if you have $5 billion, why in the world would banks pity you and discount your debt? Forget it! I guess Paul just couldn't put his ego aside for a second and tell the banks how much trouble he was really in. It ended up hurting him badly. The company, as we knew it, was totally wiped out. And Reichmann was left holding the bag.
I wasn't quite at that point yet. But I was close. The casinos in Atlantic City weren't throwing off enough cash to service the debt. I felt trapped. So in March of 1990 I told Wall Street I might miss Trump Castle's $43 million principal and interest payment. This announcement reverberated around the world because I had never missed any payment before. Suddenly bankers - some I'd worked with for a decade - were doubting my ability to make upcoming payments on my other loans. They were right to be skeptical. I wasn't sure myself where the money would be coming from. The problems at the Castle could have have triggered a series of defaults, forcing me into personal bankruptcy. And there was no way Donald Trump was going bankrupt! I would talk about bankruptcy and I would use that possibility as a tool to negotiate, but I'd never do it. That would end the game.
So I dug in. I waited - waited and watched. I took tremendous punishment as I watched my empire collapsing around me. Finally, it became obvious to me and the rest of America that the economy was crashing for all. When this realization hit me, I decided I'd do everything in my power to suffer the pain as early as possible. Negotiate, I thought, before everyone else starts getting into the game. I now realize that, if I had waited just six months longer to renegotiate terms with the banks, I might have lost everything, because six months later I would have had to stand in line with a whole bunch of other moguls who were trying to do the same thing - work out a deal, get a discount on debt, buy some time. In retrospect, that decision was perhaps the smartest thing I did.
Sure, it crushed my ego, my pride. I hated having to go to the bankers with my hat in my hand. And yes, my lifestyle was a little cramped for a while. I guess all that's important. But getting a deal on the table -- without filing for bankruptcy -- was the most important thing of all. I decided there was no way I'd make the same mistake Paul Reichmann had made -- I wasn't going to let my ego get in the way. I figured I'd sell off a few assets and suffer a small hit to my ego in order to keep my 18,000 employees and keep afloat the thousands of family firms and suppliers that were dependent on the Trump Organization for work. After all, these people would have found it much tougher to recover. I wouldn't have been able to look in the mirror if I'd let them down.
I knew I had to protect myself - by being flexible. I never get attached to one deal or one approach. I keep a lot of balls in the air because most deals fall out no matter how promising they seem at first. This was paticularly important now, since after I missed the Castle payment, the bankers involved in my loans would certainly get more involved. I was fortunate enough to work with some tremendously talented people: Ann Lane of Citibank, Joe Manganello of Bankers Trust, and Peter Ryan of Chase Manhattan, to name a few.
They were big-picture types - not middle management bureaucrats lost in the minutae. They often shared my vision, and they brought to the table much vision of their own.
I dealt with some real jerks also. One was named Ben Berzin, who worked for Midlantic Bank. He sometimes gave more than you ever thought you could get, and sometimes gave nothing when it wouldn't have mattered to him. He was an amazing phenomenon. I cut a deal with him on a loan in Atlantic City that was secured by a casino property, much of itguaranteed by me. The discount was temendous. Frankly, I was a little surprised I was able to get so much out of him. During this period Berzin acted normal and seemed very calm.
But after he made the deal, he turned into a monster. For the smallest nothing he would threaten to issue a default notice. Berzin would call up and scream at people at the top of his lungs about non-sense, and yet he gave me tens of millions of dollars in discounts. After I was finished with this jerk, I called him to ask why, with his attitude, he made the deal in the first place, and after having made the deal, why he was so obnoxious? He really had no answer.
I knew - and I think he knew, in the end - that if he'd just sat back with me, as I had originally asked him to do, he would have been paid out in full. Instead, I am proud to say, he lost a lot of money on the transaction...
Another banker who was incredibly disappointing to me was Patricia Goldstein of Citibank. She's a tough, hard woman with very little social grace. She's not well liked by those who know her, and she's particularly disliked within the real estate industry. Because she has Citibank on her shoulders, she thinks she's hot shit. And believe me, she's not.
To top it of, she made a truly stupid deal for Citibank. Had she listened to my advice about the Plaza Hotel, the bank could have made hundreds of millions of dollars more than it ended up making. But she wouldn't listen to anybody. As a result, she prevented the bank from being able to take advantage of a great situation.
(Read more about Trumps triumphs on page 3)
I will never forget the day I was forced to call the banks to renegotiate my loans. This was something that I never thought could happen to me. It was awfully tough when you had come from the top - and had been there so long. I called a meeting. Most of my major banks were there, and my conference room was packed. I told them in as nice a way as possible, that I was in deep financial trouble and that, on top of that, I wanted more money, about $65 million. Their jaws fell to the floor. Their eyes glazed over.
After the initial shock had worn off, we began to talk. Some were angry; all were concerned. But this was very early in the process. The reason I wanted the $ 65 million I said, was that my business was good, but there was no liquidity in the markets. My projects were great, unlike a canary Wharf that was sucking O&Y dry. They were well located, with well-built, magnificent buildings. I hadn't incurred cost overruns or the other problems attendant to most properties. What I did have, I explained to the dropped jaws in front of me, were great properties in a terrible market. The asset values had dropped precipitously, but the borrowings had not. In 1989, with approximately the same debt, I had a net worth of almost $2 billion, may be more. By the end of 1990 I had the same debt levels, but I was in the red. The problem: property values had plummetted so dramatically that many of my projects were worthless. In retrospect, it all seems easy to understand. Nevertheless, at the time, it was one of the toughest
meetings I've ever had.
Essentially, I placed a big bet. "Look," I said. "I can tie you guys up for years -- in court proceedings, bankruptcy filings, and the other legal manoeuvers I'm good at -- when forced. But I'm willing to do something else." I told them that if they gave me a $65 million line of credit, used only to keep my valuable assets and good business going, I'd agree to end any thought of legal skirmishes. My side of the deal looked like this: First, the banks would float me $65 million to keep my head above water. Second, no single bank could lay claim against me for five years (until June 30, 1995). Third, all interest and principal on loans would be deferred until that time. It was a win-win situation for all. I was able to buy some time in the hope that the casino or the real estate markets would rebound. And the banks were able to collateralize their unsecured debt and consolidate the rest.
This was the biggest bet of my life, and boy, did it pay of! Had I tried to make this deal six months later, it would have been impossible. The banks were becoming more and more illiquid - there's no way they would have been able to allow any more money to go out. They were as tight as I was then. Timing, once again, was everything.
The short of it is, the banks got smart. In order to save the vast amounts of time and money entailed in what would have been one of the most complicated proceedings ever, the banks more than capitulated -- they enthusiastically agreed to my proposal. I kept my business going; I had liquidity. And I never took down more than $45 million of the $65 million credit line. I started paying off one loan after another. I was working like never before.
While I had my miscues with some bankers, I also earned a respect for bankers in general. Some of the people I dealt with were as smart and cunning as you can imagine; they were also good people. Some of them, such as Manganello, Ryan, Ann Lane, Peter Bauman, Tony Terracciano, and Steve Busch, would do well wherever they went. And I really owe them a lot, not only for their wisdom, but for their flexibility and understanding.
It was three o'clock in the morning when Ann Lane of Citibank called me and said, "Donald, sorry to wake you up, but can you get up and immmediately come to our war room? We'are having trouble with three banks - one in Austria, one in Japan, and one in Singapore. We think you should be here to talk to the presidents of the banks yourself. If we don't get them, the whole deal will collapse becuse we must get all ninety banks, unanimously." At 3:15 am on a cold, wintry morning with sleet falling from the skies, I got up and walked ten blocks to Citibank - my driver was at his home, and so, I guess, were the rest of New York's taxicab drivers. I arrived drenched and cold. I turned to Ann and said, "This is a new low point." Anyway, Ann's a star - she's the one who guided Rupert Murdoch through his troubles at Citibank, which launched his tremendous comeback and success. She met me with an army of assistants. We placed the calls, one by one, and I was able to convince the banks to do what was in their best interest and also in mine. I may have been successful, but it certainly wasn't fun.
This was one of the most complicated transactions of the nineties. Ninety banks had billions of dollars in debt. I will always remember the morning of June 30, 1990. I arrived at the law offices of Weil, Gotshal, Manges & Rosen at 8:00 AM. There greeting me - stacked two feet high and spread across every inch of their largest conference table - were two thousand documents, all of which needed my signature. I started signing. The clock hit 10:00 AM. Wait, I asked some associate, where is my lawyer? The partner I had dealt with for the past 15 years was an old friend and a confidant. I couldn't believe he wasn't there at eight - and here it was ten? The clock hit noon. Where is he? I asked again. Another associate told me he was in meetings. It took me two days to sign all those documents, and this guy finally showed up. Fifteen years of deals, fifteen years of business - and he shows up late. He regrets that now! And he has paid a big price with me. Anyway it was the best deal I ever made.
One thing I learned from all this: sometimes the best thing you can do is just let things ride, let time go by. There were moments when I felt bored, useless, like my hands were tied. I wanted to do something! But the truth was, a lot of the negotiating that took place didn't really have much to do with me. It more involved huge conference rooms of mid-level bankers quibbling over millions of dollars of secured and unsecured debt. They could certainly do this without me. It was mainly out of my control.
As a result, I had a lot of time on my hands. That's when I decided I'd take up golf again. It helped me relax and concentrate. It took my mind off my problems; I only thought about putting the ball into the hole. And it certainly beat hanging around the office waiting for my phone to ring. n
Trump: The art of the comeback
By Donald J Trump with Kate Bolmer
Published by Time Books (Random House)
Distributed by IBD(Delhi)
Price: $ 18.75; Pages: 244