The success of Trump as a business mogul has been long disputed. If he would have just taken his dad’s money and infested it in the S&P 500 and did nothing else, he would now have 2-3 times his current worth. His mountain of debt is one thing everyone can agree on that he could have done better. To date, his corporations have filed for Chapter 11 bankruptcy four known times. Ethics critics raised concerns regarding how Trump’s business interests would be managed before he became president. He promised to step away from active running of all Trump organizations and only retain ownership of his properties and business interests. As president, it would create a conflict given that his personal financial circumstances would have some effect in his decision-making.
Interestingly, some of the biggest conflicts that have arisen haven’t been about what President Trump owns, but rather what he owes. All of his top properties, the Washington DC luxury Hotel, Trump Tower and Trump National Doral golf course, have heavy mortgages attached to them, meaning that he has critical financial relations with creditors that must be maintained.
This brings about potential conflicts when the creditors, who are large foreign and domestic financial organizations, have needs and interests that are contrary to the needs of the American people. Trump’s financial interests will be better served by staying on their good side, which might happen at the expense of the common good.
Some of Trump’s most significant borrowings
Below is a list of Trump’s two most glaring debts according to publicly available loan contracts. His disclosure statement places his loans at 16 facilities worth more than $713 million. This does not include an estimated $2 billion in real estate partnership debts in which Trump has a minority interest. One of these debts includes a $950 million facility which is provided by China’s federal Bank of China and Goldman Sachs – this one is interesting because the American Constitution has an emolument clause prohibiting federal officers from getting financial benefits directly from foreign governments.
- Deutsche Bank (364 million)– This German bank is one of Trump’s oldest and highest lenders. They came to his rescue during the time when Trump was unable to get financing from Wall Street because of his out-there business tactics. He later sued them for causing international unrest that impacted his business negatively. While the case was settled, Trump’s relationship with the lender didn’t recover. Deustche Bank was one of the banks accused of selling bad mortgages that in part contributed to the 2008 financial crisis and is currently on the hook to settle about $14 billion in claims against themselves. Now that Trump is in charge of the case and his personal interests, theclear conflict created could spell potential doom for claimants if Trump does not honor his office above his personal interests.
- Ladder Capital ($282 million)– This is the next major financier for Trump’s business activities. Ladder is a small firm which specializes in commercial real estate loans in collaboration with larger Wall Street banks. Unfortunately, Trump is personally liable for around 10 percent of the loan, and so, should his corporation fail to pay, he may have to personally cover that amount. Given that the firm is also structuring a sale of some of its loans, there’s a chance that this facility could be bought by anyone else – that’s a random, and perhaps foreign institution owning a US President’s debt.
Most other debts are smaller loans (less than $25 million owned by different banks, trusts and even individuals). Every single one of these debts could create potential conflict and spell doom if Trump is unable to pay them. He may find himself pushed to a corner where he must acquiesce to oppressive policies so that he remains on his creditors’ good side.
Why Donald Trump keeps surviving bankruptcy
Some people may wonder how Donald Trump seems to always be filing for bankruptcy yet he still survives. The real answer is that Donald Trump himself doesn’t file for bankruptcy. Instead, his corporations, which are legally entities on their own, are the ones that file for Chapter 11 bankruptcy (four times so far).
When an individual is in financial trouble, he/she can seek help from nationaldebtrelief.com or other debt consolidation and/or credit counselling agencies. In dire circumstances, they file for Chapter 7 bankruptcy.
Filing a Chapter 11 bankruptcy allows the corporation to continue running business activities as they try to reduce and restructure their debt profile. Because business operations are allowed to proceed almost normally, employees retain their jobs and the business still makes its money. Corporate debts, however, continue to be repaid, but some may be reduced. The company must come up with a corporate budget and debt repayment plan which must be approved in bankruptcy court as well as by the creditors.
Because the company is a separate ‘person’ from the owners (shareholders) and stakeholders (such as CEO and board of directors), the bankruptcy suit is considered under the company name and not the owners’ and their assets are protected from repossession by creditors(except in cases where the owners made themselves personally liable for certain debts). In addition, their credit history remains unchanged.
President Trump’s Taj Mahal, which was in Atlantic City, found itself owing billions of dollars in 1991. Because of this, the corporation filed for a Chapter 11 bankruptcy. The court allowed Trump to restructure corporate debts while allowing the casino to continue running. He did, however, surrender half his ownership stake in Taj Mahal. He helped make loan repayments by selling off an airplane and yacht from his possessions.
He filed for Chapter 11 bankruptcy again in 1992 because of his Atlantic City Trump Plaza Hotel. This time, he owed $550 million on the hotel, and part of his debt restructuring efforts included giving Citibank Group a 49 percent stake in the hotel. In return, he received a lenient repayment plan that allowed him to retain his position as CEO, although he had to give up his salary.
In 2004, Trump Hotels and Casino Resorts had to file for Chapter 11 bankruptcy because their debt profile amounted to $1.8 billion. Trump sold of some of his controlling stake in the company and retained 25 percent stake and so yielded control. In return, he was allowed lower interest rates and another loan facility to upgrade the place.
Finally, in 2009, Trump Entertainment Resorts missed a large bonds interest repayment and filed for bankruptcy. He failed to agree on a suitable repayment plan with the board of directors, and so he resigned as board chairman and sold of his stake to remain with just 10 percent ownership interest.
As a great business mind has shown us, managing debt isn’t the easiest thing to do these days. If you’re unable to get on top of yours, don’t be afraid to seek help so that you are able to make repayments without accruing punishing interests or losing your assets. With debt consolidation, you will be able to manage your debt while reducing the hassle of repayment.