Trump reorganization plan draws objections from DLJ Merchant Banking, U.S. Trustee

New York, March 21 - Trump Hotels & Casino Resorts, Inc.'s plan of reorganization met with objections from creditor DLJ Merchant Banking Partners III, LP and the U.S. Trustee.

DLJ Merchant Banking, which said it is owed $26 million as a general unsecured creditor, said it is opposing the plan because the voting procedure was "flawed and violated and express order of this court [the U.S. Bankruptcy Court for the District of New Jersey]."

In addition, DLJ Merchant Banking said the plan is not feasible and the company will be back in bankruptcy before it has completed distributions.

It also said the plan discriminates "unfairly," because Trump has not proved the proposed restructuring will provide creditors with more than a Chapter 7 liquidation and objected that the proposed releases to be given to professionals are not justified based on the facts presented to the court.

Meanwhile the U.S. Trustee said the plan does not comply with the bankruptcy code through the releases it provides to individuals, companies and professionals. In addition, the plan tries to assume agreements with UBS Securities LLC and Deloitte & Touche LLP "in a blatant attempt to circumvent the requirements" of part of the bankruptcy code.

In a filing Monday, DLJ Merchant Banking said the solicitation of votes was defective because, it said, the company failed to disclose in a "fair and plain manner" - as required by the court - the "various and intricate distributions to insider Donald J. Trump."

Furthermore, general unsecured creditors, including DLJ Merchant Banking, were not allowed to vote because the company claimed they were unimpaired. However DLJ Merchant Banking believes unsecured creditors are impaired because they will not receive interest for the period after the Chapter 11 filing even though Trump said they would.

In addition, DLJ Merchant Banking's complaints included that unsecured creditors' rights are modified by the substantive consolidation of the bankruptcy companies and their potential claims against third parties are released without any payment.

DLJ Merchant Banking also described Trump's forecast of future performance as "overly optimistic," particularly since the company continues to lose market share. Trump will be unable to sustain its EBITDA generation and has not identified "a realistic way to renew their properties through a sustained capital restoration program."

The plan also fails to demonstrate that the company will actually be able to pay the general unsecured claims, DLJ Merchant Banking said in its court filing.

DLJ Merchant Banking also objected that Donald Trump will receive the right to invest in the company as it exits Chapter 11 even though senior creditors will not have been paid in full. Furthermore, Donald Trump will receive more than he invests, meaning he will be retaining property under the plan, violating rules of priority in bankruptcy, DLJ Merchant Banking said.

In a separate objection filed Monday, the U.S. Trustee opposed the plan because of the role of UBS Securities and Deloitte & Touche.

On Nov. 19, 2004, two days before the Chapter 11 filing, Trump paid UBS $8 million but said the bank was not being formally retained for the bankruptcy case, the trustee noted.

Nonetheless, UBS has played a "significant role," according to the trustee, including involvement in the debtor-in-possession financing and use of cash collateral.

On March 1, Trump had to amend its agreement with UBS so that it could hire Lazard Freres & Co. LLC - UBS had previously been described as exclusive financial adviser, as disclosed at the DIP hearing, the trustee said.

However on March 15, the court refused to allow the proposed payments to Lazard as it could not determine whether they were reasonable given that UBS' role was unclear.

The court also refused to allow the employment of Deloitte & Touche as expert witnesses, saying the firm should be hired as a professional.

Under the proposed reorganization, Trump intends to assume the contracts with UBS and Deloitte on exit from Chapter 11, according to the trustee.

But the trustee sees this as circumventing the provisions of the bankruptcy code. It believes UBS could not be hired as a professional during Chapter 11 because UBS "in all likelihood" was not disinterested, having underwritten bonds in 2003 and being listed as one of the 20 largest unsecured creditors.

The trustee also opposed the releases being given to third parties, including directors, officers, employees, the official and unofficial committees, the indenture trustee and collateral agents - and "almost every party and professional (whether or not the professional was retained as required by the Bankruptcy Code) somehow associated with the debtors' cases."

The U.S. Trustee noted the releases cover willful misconduct and gross negligence as well as simple negligence.

"The releases are involuntary, virtually unlimited in scope and extend to any conceivable acts or omissions in connection with the Chapter 11. As drafted, these provisions broadly extend a release and discharge to non-debtor entities and contravene the bankruptcy code," the trustee said.

The confirmation hearing is set for April 5.

Trump Hotels & Casino Resorts, a New York casino operator, filed for bankruptcy on Nov. 22 in the U.S. Bankruptcy Court for the District of New Jersey. Its Chapter 11 case number is 04-46898.

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