Wednesday, March 31, 2004 | 11:18 a.m.
ATLANTIC CITY -- While Donald Trump basks in the popularity of his runaway hit reality TV show, "The Apprentice," the auditors for his Atlantic City casino property are raising alarms over the financier's real-life debt load.
Shares of Trump Hotels & Casino Resorts fell 11 percent Tuesday on news of auditors' concerns that, barring a bailout, the company might not be able to continue as a "going concern."
In a letter to the company's board of directors, auditors for Ernst & Young LLP said that the debt-laden company, which runs three Atlantic City casinos and a Gary, Ind., riverboat, is struggling under stiff competition, recurring operating losses and had a working capital deficit as of Dec. 31, 2003, the auditors said.
The letter, which is dated earlier this year, was made public Tuesday as part of Trump Hotels' annual report filed with regulators.
"The company is working on various alternatives to improve the company's financial resources ... Absent the successful completion of one of these alternatives, the company's operating results will increasingly become uncertain. These conditions raise substantial doubt about the company's ability to continue as a going concern," the auditors said.
Last month, Trump announced that Credit Suisse First Boston had agreed to make a $400 million cash infusion into the company in exchange for a controlling stake.
If approved by bondholders, the deal would result in Trump's removal as chief executive officer. He would stay on as chairman, but the company would be called Trump International, under the plan.
Trump Hotels, which carries $1.8 billion in debt, has been unable to finance major capital improvements at its Atlantic City properties at a time when competitors -- including the new Borgata Hotel Spa & Casino -- have been luring away gamblers.
Trump, who initially declined comment on the auditors' letter Tuesday, noted later that the 11.25 percent notes issued by subsidiary Trump Atlantic City Associates will not come due for another two years.
"The debt doesn't come due until May of 2006. That's a long time. We are addressing the situation immediately, as we speak," he said.
Scott Butera, executive vice president of Trump Hotels, said the company would be able to make a $73 million interest payment on the notes due May 1, although the company may use a 30-day grace period to do so.
"Obviously, the auditors have to do and say what they have to in today's environment," Butera said. "They have to take whatever care and caution that they have to. What we've been saying to the market is we have high leverage and we have fairly high interest rates relative to our competitors in Atlantic City. Most of our cash flow goes to pay debt service. As a result, we haven't had the opportunity to invest in our properties as our competitors have."
One analyst called the auditors' warning no surprise.
"Their cash flow is going one way and their interest expenses are rising," said analyst Jim Gentrup, of Provident Equity Research. "They're just drowning in debt. They recognize it, though. It's not like Donald is standing still. He's doing something about it."
The Credit Suisse deal hinges on whether bondholders will agree to the recapitalization. Asked Tuesday if he thought they would, Trump said: "We'll find out. We'll see what happens."
Shares of Trump Hotels closed down 35 cents, or 11.4 percent, at $2.71 on the New York Stock Exchange. The shares fell another 2 cents in after-hours trading.
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