Donald Trump brags that he made his fortune with debt, but he doesn’t talk about the specifics. Knowing how Trump amassed his wealth is to know the man who could be president. Wikipedia and a May 1 article in Fortune magazine, “Business the Donald Trump Way,” provide details on the process Trump used to accumulate his wealth.
The three-step process is incredibly simple:
• One, acquire the property. Trump acquired the Taj Mahal for about $275 million and renamed it the Trump Taj Mahal.
• Two, make a publicly held company. Trump took his umbrella company Trump Hotels public in 1995.
• Three, sell private holdings to the publicly held company, financing the sale with debt. Trump sold the Trump Taj Mahal to Trump Hotels for $898 million. At the time, Trump owned 50 percent of Trump Taj Mahal. The purchase was financed with high-interest junk bonds.
At the end of the transaction, Trump kept half of the cash, and Trump Hotels owned the Trump Taj Mahal and a mountain of debt.
Trump repeated the transaction with another casino, Trump’s Castle, which Trump sold to Trump Hotels for over $500 million. Trump owned 100 percent of Trump’s Castle. Again the sale was financed with high-interest junk bonds.
The huge debt burden buried Trump Hotels and its successor, Trump Entertainment, forcing two bankruptcies. With Trump at the helm, the casino company lost nearly $1.7 billion, but Trump kept his cash from the original sales to the publicly held company.
Peter Konieczko
Scarborough
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