Trump's Four Bankruptcies: A Closer Look at the Business Decisions

Carly Fiorina's comments during the CNN Republican debate on September 16, 2015, sparked a controversy over Donald Trump's history of bankruptcies. Fiorina stated that Trump was "forced to file for bankruptcy not once, not twice, four times." This assertion raises questions about the nature of Trump's business decisions and the circumstances surrounding his companies' financial struggles.

In the midst of this controversy, it is essential to understand the context of each bankruptcy. Trump's companies have filed for Chapter 11 reorganization four times since 1991. These reorganizations were necessary due to financial difficulties, but they do not necessarily reflect poor business decisions on Trump's part.

The first bankruptcy associated with Trump was that of the Trump Taj Mahal casino in 1991. The casino was facing significant debt and Trump was forced to give up half his personal stake in the business. The next bankruptcy occurred in 1992, when the Trump Plaza Hotel accumulated $550 million in debt. In exchange for easier repayment terms, Trump relinquished a 49 percent stake in the hotel to six lenders.

The following bankruptcies occurred in 2004 and 2009. Trump Hotels and Casinos Resorts filed for Chapter 11 reorganization due to an estimated $1.8 billion in debt. Trump agreed to reduce his share in the company from 47 to 27 percent in a restructuring plan. Trump Entertainment Resorts was similarly affected by the 2008 economic recession and missed a $53.1 million bond interest payment in December 2008. After debating with the company's board of directors, Trump resigned as the company's chairman and had his corporate stake in the company reduced to 10 percent.

Finance experts, such as Michael Venditto and Stephen Lubben, argue that Chapter 11 reorganization is not always a result of poor business decisions. It can be seen as a "sound business decision" when a company is facing financial distress. However, the source of the financial problems varies from case to case and can be influenced by factors beyond the business's control.

Key Takeaways:

• Carly Fiorina's statement about Donald Trump's four bankruptcies is accurate, but it does not tell the whole story. The bankruptcies were not solely due to Trump's business decisions, but also due to external factors such as the struggling casino industry.
• Trump's four bankruptcies were all Chapter 11 reorganizations, which are designed to restructure businesses without shutting them down completely.
• Finance experts argue that Chapter 11 reorganization is not always a result of poor business decisions. It can be seen as a "sound business decision" when a company is facing financial distress.
• Trump's companies have filed for Chapter 11 reorganization four times since 1991, with the most significant bankruptcies occurring in 1991 and 2004.
• Trump's corporate stake in the company was reduced to 10 percent in 2009, after he resigned as the company's chairman.
• The gaming industry has been struggling in recent years, and three out of four of Trump's bankruptcies were tied to casinos.

Statistics:

• The Trump Taj Mahal casino was facing significant debt and Trump was forced to give up half his personal stake in the business.
• The Trump Plaza Hotel accumulated $550 million in debt before Trump relinquished a 49 percent stake in the hotel to six lenders.
• Trump Hotels and Casinos Resorts filed for Chapter 11 reorganization due to an estimated $1.8 billion in debt.
• Trump Entertainment Resorts missed a $53.1 million bond interest payment in December 2008, which led to Trump resigning as the company's chairman.

Sources:

• CNN, GOP debate transcript, Sept. 16, 2015
• The New York Times, "THE YEAR IN FINANCE: NEWSMAKERS IN 1991; Money Movers Caught in the Turbulent Times of the 90's; Donald J. Trump: Bargaining To Stay Afloat," Dec. 31, 1991
• The New York Times, "TRUMP'S PLAZA HOTEL BANKRUPTCY PLAN APPROVED," Dec. 12, 1992
• The Associated Press, "Trump casinos file for bankruptcy," Nov. 11, 2004
• ABC News, "Donald Trump's Companies Filed for Bankruptcy 4 Times," April 21, 2011
• CNN Money, "Everything you want to know about Donald Trump's bankruptcies," Aug. 31, 2015
• The Washington Post, "What Trump didn't say about his four big business bankruptcies," Aug. 7, 2015
• Vanity Fair, "4 Times Donald Trump's Companies Declared Bankruptcy," June 29, 2015