Trump bailout no return of lender risk
Just because The Donald convinced a bank to help his struggling casinos, doesn't mean financing will flow once again.
(breakingviews.com) -- Donald Trump's resurrection isn't necessarily a bellwether for buyouts. The casino mogul-turned-reality television star has convinced a bank to restructure a loan to allow his Atlantic City, N.J., casinos to emerge from bankruptcy -- again.
But while that sounds like an encouraging return of lender risk appetite, it doesn't necessarily mean financing will start to flow for private equity firms seeking to fix their own problem children. And buyout firms are in any case less likely to want to resuscitate their cratered companies.
Trump Entertainment Resorts (TRMPQ) entered bankruptcy for the third time in February, when a clash with its bondholders caused Trump to resign. He subsequently bid to buy the company for $100 million, a deal that the company chose over a competing offer from bondholders. As part of the deal, Beal Bank Nevada agreed to extend the maturity on a $486 million loan.
Of course, plenty of other investors, like buyout firms, are seeking to restructure loans. Only buyout shops are having a harder time. Deutsche Bank (DB) played hardball over a debt swap proposed by Kellwood, a clothing retailer owned by buyout firm Sun Capital, before agreeing on terms. JPMorgan (JPM, Fortune 500) is fighting cable company Charter Communications (CHTRQ, Fortune 500) in bankruptcy court over a plan that would disadvantage its senior lenders.
Beal may be willing to cut The Donald some slack because the casinos are so closely tied to his brand. He has run the company for decades. So other investors might hesitate to swoop on properties so closely associated with him.
By contrast, other failed companies have attracted a flock of vultures. Nortel (NRTLQ), for example, recently received several bids for a telecom unit that it was selling out of bankruptcy. And Trump may be one of the only parties who believe the casinos have a future. Banks may not like backing him, but he may be their best hope for some recovery.
Private equity firms also don't get as much advantage out of the long and expensive process of reviving failed portfolio companies, often preferring to leave them in the hands of creditors and set sights on their next targets. Trump's ego and brand give him more reason to go the extra mile. Beal had better hope Trump's third new beginning proves to be the charm.