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Trump’s Bankruptcies: Why, When and How

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Trump’s Bankruptcies: Of Why's and How's

Does Trump Having Bankruptcies Make Him Inept As A Leader?
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In 2015, Carly Fiorina alleged that Donald Trump has filed for bankruptcy four times.  She claims this makes him a risky choice for the job of president.  Trump’s responses to such allegations speak volumes about his sense of personal responsibility.

First, Trump accurately states that he has never filed for personal bankruptcy

There are several kinds of bankruptcy under United States’ Law, some involving liquidation and others rehabilitation.  The bankruptcy that Trump filed for on four separate occasions was Chapter 11 bankruptcy. It affected the assets of the companies he filed on behalf of while letting him personally scot-free.

To fully understand why it is necessary to summarize what Chapter 11 bankruptcy is.

What are the basic features of Chapter 11 bankruptcy?
  • The company or individual is allowed to keep some of its assets under the following condition: The debtors must submit a plan to restructure their company, so it has a chance to recover and repay its creditors.
  • Corporations and LLCs may file under Chapter 11 as though they were individuals.
  • Owners of LLCs and corporations are not liable for the bankruptcy. The LLC or the corporation is.
Trump’s First Failing Was the Costliest to Him Personally

Trump’s first major investment to go bankrupt was the Atlantic City Trump Taj Mahal Casino in 1991.  He was forced to use junk bonds at 14-percent interest to finance it.  In spite of his assertions that it would be a great business, the economy just could not support the venture.

Ultimately, the business filed for Chapter 11 bankruptcy.  He was forced to give up 50% of his share in the organization.  He blamed the failure, not entirely unjustly, on the bad economy at the time.

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Trump’s Second Corporate Bankruptcy Again Saw Him Forced Out of Authority

Trump’s second venture to go bankrupt was the Trump Plaza Hotel in 1992.  Again, it ended up in crippling debt.  Furthermore, he was again required to give up almost half his stake in the venture and any control over how the hotel was run.

Trump’s Third Corporate Bankruptcy Came Because of 1.8 Billion Dollars of Debt

In 2004, Trump’s casinos were struggling again.  They filed under Chapter 11.  While he remained in charge of the organization, he still lost almost half of his shares as part of the restructuring agreement.

Finally, Trump’s Last Bankruptcy Resulted in His Stepping Down as Chairperson

Trump Entertainment Resorts was struck in 2009 by the economic recession and could not supply a sizeable interest payment.

They filed for Chapter 11 bankruptcy, and Trump’s corporate stake went down to a mere 10 percent.  The company continued to use his name as the valuable brand it was but wanted no further guidance from Donald Trump the man.

What Donald’s Opponents Have to Say About What This Means for His Candidacy
  • That he lost a great deal of other people’s money with little cost to himself.
  • That he destroyed jobs and swindled lenders.
  • That he mismanaged his investments so badly that he went into corporate bankruptcy four times in 25 years—a record-setting number.
What Trump Has to Say on the Matter

Trump maintains that his Chapter 11 bankruptcies were a smart, appropriate action to take in all cases.  He says that other companies take advantage of them all the time.  He was merely being a savvy businessman in using the laws that are in place for such situations.

He implies that the same characteristics which make him willing to file for bankruptcy would make him a good president.  He feels that the United States is currently in the kind of debt that merits bankruptcy protections.

Furthermore, he mostly blames the failure of some of his ventures on market forces.  Though he did take risks in his investments, this is a hard argument to refute.  His bankruptcies took place during downturns in either casinos or the economy in general.

Is the Backlash Against Trump Fair?

Trump did opt for Chapter 11 bankruptcy, which allowed the companies to survive in some form rather than being liquidated.

Law professor Adam Levitin goes so far as to suggest that the real reason people are taking it so personally is that Trump puts his name on everything.  People then assume that Trump the man is responsible for every decision and roast him like any other celebrity.

One Atlantic City lawyer, credited only as Viscount, goes so far as to say that the lenders are the ones at fault.  He feels they should have known better, but they lent to Trump because of his name and branding.

The Controversy Continues

Apparently, some people feel that Trump’s bankruptcies are an indication of a poor businessman.  They recognize that he takes no personal responsibility for the failings of his businesses.  Their fear is that he would fail the United States Government as he has failed some of his business ventures.

Others feel that the bankruptcies were due to market factors over which he had no control.  They feel the bankruptcies should not be used to judge his character.

Either way, it looks as though voters will have to decide the final outcome.

 

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Automobiles

Hertz Pulls $500 Million Offering After SEC Review

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Hertz Pulls $500 Million Offering After SEC Review

Fortunately, Hertz won’t be able to sell worthless shares in exchange for real money.

The financially – and apparently morally – bankrupt company ended its bid to sell up to $500 million in new shares that it acknowledged likely didn’t amount to much.

In a regulatory filing yesterday, the company said that the stock offering “promptly” became “suspended pending further understanding of the nature and timing of the Staff’s review.”

In the filing, Hertz said that it had been in “regular contact” with the Securities and Exchange Commission all week. This came after the agency told the company on Monday that it planned to review the stock sale.

SEC Chairman Jay Clayton said Wednesday that his agency had concerns about Hertz’s plan to sell stock while the company is in the middle of bankruptcy proceedings.

“In this particular situation we have let the company know that we have comments on their disclosure. In most cases when you let a company know that the SEC has comments on their disclosure they do not go forward until those comments are resolved,” Clayton said during an appearance on CNBC.

The Process

When companies want to sell a security, in this case more shares, they submit a filing with the SEC. The agency will review the filing. It will also send comments back to the company consistently. In its feedback, it will ask the company to improve the disclosure or any irregularities in the filing. During his CNBC appearance, Clayton did not specifically mention the issues the SEC had with the Hertz filing.

“We at the SEC, were are trying to carry out our responsibility in situations like this as best we can and I expect the other professionals around the situation to carry out their responsibilities as best they can,” Clayton added.

Those disclosures filed by Hertz said “Although we cannot predict how our common stock will be treated under a plan, we expect that common stock holders would not receive a recovery through any plan unless the holders of more senior claims and interests, such as secured and unsecured indebtedness (which is currently trading at a significant discount), are paid in full, which would require a significant and rapid and currently unanticipated improvement in business conditions to pre-COVID-19 or close to pre-COVID-19 levels.”

In plain talk, that means the new shares are worthless.

DIP Financing

Hertz shares stopped trading for several hours yesterday before resuming again just before 3:30pm ET. Shares were up double-digits before closing the day with a modest 2.6% gain.

The company, which filed for bankruptcy on May 22, would traditionally get debtor-in-possession (DIP) financing. This would allow it to remain in business as the company went through bankruptcy proceedings.

However, after Hertz filed for bankruptcy, shares traded as low as $0.40 on May 26 before surging to as high as $6.25 on June 8.

Instead of taking the DIP loan that would need to be paid back, the company instead wanted to sell shares. I then planned to use the cash proceeds to pay off creditors. Hertz had hoped to sell up to $1 billion in shares, before trimming the proposed offering down to $500 million.

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Bankruptcy

Kenmore Deal a Short Term Solution for Sears… Simply Delaying the Inevitable

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Sears is one of the most iconic retailers in U.S. history. The company started the mail order catalog in 1888, and grew its brand of department stores from there as it became one of the driving forces behind malls. But lately, times have been tough for Sears. The once proud retail giant has shuttered Sears and KMart stores left and right as it tries to avoid bankruptcy. Now the company is doing something it’s never done before, turning to online distribution to turn things around. But is it too little too late?

Can the Deal Sears Struck with Amazon Right the Ship?

While Sears has been struggling to adapt to modern day retail trends, the company has been bailed out on several occasions by cash injections from CEO Eddie Lampert, who has given personal loans as well as investments from a hedge fund he manages. However, a cash injection isn’t enough if nothing is changing. So Sears is working to change. The next step? Selling its proprietary Kenmore brand through Amazon.

While the deal makes a ton of sense for Amazon, it’s a desperation play by Sears. Amazon gets to offer a leading brand on a pretty exclusive basis. Other than Sears itself, consumers won’t have any other options to purchase a Kenmore appliance. As the world’s leading online retailer, getting a leading brand no one else has just adds fuel to the fire. Smart play by Amazon. But for Sears?

Sears might see a small bump in sales from this deal, but the truth is, those sales won’t be enough to offset the trend of declining sales Sears has been experiencing for years now. Unless Sears has a bigger picture plan for expanding distribution of its products and brands, this changes nothing for the struggling retailer. That’s best case scenario. Worst case scenario? People who were willing to go to Sears specifically for its Kenmore brands now have one less reason to visit the store, or even the online store.

Clearly Sears is struggling. But they do have some valuable name brands. The best of those was Black & Decker, which sold this year for $900 million, down from the original $2.2 billion that was being considered. With Kenmore being another leading brand name, why isn’t Sears trying to sell the Kenmore brand? Most likely, no one wants it. Which is just another in a growing list of bad signs for Sears.

Watch this video from iBankCoin.com about the Amazon Sears Agreement to sell appliances online:

Ignore the hype around the deal. Expect shares of Sears Holding Corp. (SHLD) to continue DOWN.

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


 

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Puerto Rico’s Bankruptcy Pits Wall Street Vs. the U.S. Government

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Puerto Rico is out of money. And not just out of money, but in serious debt, owing $73 billion to many Wall Street companies after years of investment in the territory by Wall Street. What happens when a territory defaults? It’s not a country that can give away its assets — Puerto Rico is a U.S. territory and thus falls under U.S. law. And as the U.S. government is wont to do when big businesses are facing trouble, Congress is bailing out Puerto Rico with a special type of bankruptcy protection. Who is most affected by the news?

What’s Next for Puerto Rico?

How does a U.S. territory end up pitted against one of the world’s biggest financial institution? In the case of Puerto Rico, through bonds. For years, Puerto Rico offered high yield bonds which brought in hedge fund and mutual fund managers who viewed the territory as a safe bet due to tourism and being part of the U.S. economy.

Puerto Rican Flag | Puerto Rico's Bankruptcy Pits Wall Street Vs. the U.S. Government

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So what happened? Well, investors assumed that the island’s financial difficulties and economic issues would be solved at some point. Unfortunately, that’s not the case. Now, those bonds have come due, to the amount of $73 billion, and Puerto Rico just doesn’t have the money to pay up. To make it relative, the city of Detroit, which is in serious financial trouble, owes about $18 billion. Out of that $73 billion debt, about $12 billion is insured, meaning that debt falls on bond insurers who backed Puerto Rico bonds. Puerto Rico then has to pay the insurance companies back, adding them to the list of debtors waiting to be paid.

Wall Street Bull | Puerto Rico's Bankruptcy Pits Wall Street Vs. the U.S. Government

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Who are these other companies? Big Wall Street names including:

OppenheimerFunds
Franklin Templeton Investments
Aurelius Capital Management

Watch this video from Wochit News about Puerto Rico’s bankruptcy:

What’s next? Puerto Rico goes into Title III court-supervised negotiations with the hedge funds to try and settle. But the fact is, that’s not going to amount to much. The government will push for debt restructuring and spending cuts, but the island is poorer than ever, with a dwindling population. The island will settle with Wall Street companies, who will then collect from the U.S. government and write down the rest for huge tax breaks. Puerto Rico will have to tighten its belt, but will survive with the help of the U.S. government’s protection and bailout.

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The statements, views, and opinions of any article, contribution, editorial, or advertisement in this publication are not necessarily those of The Capitalist or its editorial staff, and are not considered an endorsement, sponsorship, or recommendation of any referenced product, service, issuer, or groups of issuers.

This publication provides general information about certain subjects, and should not be construed or taken as advice (legal, financial, investment, tax, or otherwise). Do not construe or take any information in this publication as a solicitation, offer, opinion, or recommendation to buy or sell any securities, bonds, or other financial instruments or to provide any legal, financial, investment, tax, or other advice or service about the suitability or profitability of any financial instruments or investments.

The Capitalist disclaims any liability for the accuracy of or your reliance on any statements, views, opinions, or information in this publication.


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