Through Icahn Partners LP and certain affiliates, billionaireinvestor Carl Icahn has acquired 51 % of the first-lien debt owedby Trump Entertainment. Resorts to Beal Bank for $229 million incash. kahn also has the option to purchase the rest for around $220million, according to papers filed on Dec. 11,2009 with the USBankruptcy Court for the District of New Jersey in Camden.

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The deal, which was negotiated with Beal Bank and Beal BankNevada, is part of a bankruptcy reorganization plan kahn devised tohelp the troubled casino company emerge from Chapter 11. It's thethird such filing for the company-which owns Trump Taj Mahal CasinoResort, Trump Plaza Hotel and Casino and Trump Marina HotelCasino-or its corporate predecessors.

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This sets the stage for a battle with real estate tycoon DonaldTrump, who is backing a rival plan for the casinos'bondholders.

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"I fully recognize the need to move forward promptly and toavoid or minimize uncertainty to give each plan a full and fairconsideration," US Judge Judith Wizmur said in court documents."The way to do that is to move forward as competing plans."

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Creditors would be able to vote on each of the plans and aconfirmation hearing is scheduled for later this year.

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One key component of khan's proposal is a capital contributionof $225 million in new equity-in exchange for 70% of the new equityin the reorganized debtors-in the form of a rights offering toholders of the debtors' 8.5% senior secured notes. Those holderswill receive 20% of the new equity in the reorganized debtors as abackstop fee in consideration for their agreement to provide suchbackstop.

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khan's plan is also calling for a $125- million repayment ofBeal Bank's first lien loan and reinstatement of the balance of theloan on modified terms. Further, 5% of the equity in thereorganized debtors and warrants to purchase up to an additional 5%of such new equity will be issued to Trump or his affiliates. khanis also proposing a pro rata distribution of 5% of the new equityin the reorganized debtors to holders of second-lien notes andgeneral unsecured claims The investor said in a statement that hisplan offers the casino company the ability to weather the currenteconomic turmoil with no debt. "This team now has all of the toolsnecessary to quickly and successfully emerge from bankruptcy andrebuild a best-in-class operation," Beal said in a statement. TrumpEntertainment was unavailable for comment.

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"Ultimately the purpose of Icahn's plan is to control theAtlantic City assets," says Edward A. Mermelstein, a real estateattorney and co-founder oflaw firm Edward A. Mermelstein &Associates in New York City. "Using the lender's position is one ofthe simplest ways to accomplish a takeover. Generally, the investorwill either buy up the first note, which takes longer, or go aftera mezz position that usually shortens the time frame," he relates."But it is the bankruptcy court that will determine how all of thisplays out. And at the end of the day, it comes down to who putstogether the better financial package."

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Mermelstein's money is on Icahn. "Trump is known for using otherpeople's money and his name," he notes. "That's his expertise andhe has built a brand. But the argument today is that there's verylittle added value to having his name associated with these assets.And unless Trump comes in with some hard cash, I just don't see howhe's going to have a continued presence at these casinoassets."

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Donald and Ivanka Trump, who resigned from the company's boardtwo days before it filed for bankruptcy back in February, tried tobuy the company themselves and take it private. They were offering$114 million with Beal Bank, and were locked in a battle withbondholders for control of the company.

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But Trump switched sides last month, saying the company'sreorganization plan was mired in expensive litigation that made asuccessful outcome unlikely.

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Icahn has restructured troubled gaming companies before and,according to bankruptcy attorney Edward Neigher, this track recordshould bode well when it comes to obtaining approval for hisreorganization plan.

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In 2006, Ichan sold the Sands Casino Hotel in Atlantic City toPinnacle En-tertainment at the height of the market. The followingyear, he sold holdings in several Las Vegas casinos to the tune of$1.3 billion. Icahn also combined several bankrupt casinos to formAmerican Casino & Entertainment, which was sold in 2008 formore than $1 billion and he is now working on restructuringTropicana Entertainment and the Fontainebleau Las Vegas.

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"There are very few entities with money to spend, and even fewerwho want to get involved in the casino business, given how much itshas suffered over the past year and will likely continue tosuffer," notes Neigher, who heads the law firm Neigher LLP in NewYork City. "But the TER move continues Icahn's trend of buyingcasinos very cheap, restructuring them and then selling the assetsat a premium." There is also a small possibility that Icahn willforeclose on the Atlantic City portfolio, which controlling thefirst-lien debt allows, but Neigher believes this is an unlikelyoutcome.

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What Neigher does anticipate is more bankruptcy filings in theyear ahead. "We are seeing a lot of companies file for bankruptcyfor the sole purpose of becoming more attractive to a buyer, notnecessarily to reorganize under the same ownership," he notes."There have also been record numbers of prepackaged bankruptcies,essentially a plan for financial reorganization that a companyprepares in cooperation with its creditors that will take effectonce the company enters bankruptcy" The upside to this type of planis that it can result in shorter turnaround times-the sooner thecompany can emerge from bankruptcy, the sooner it can implement itsreorganization and return to generating revenues from its coreoperations.

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For its part, TER had been struggling with crushing debt forseveral years, which became even more painful when the economysoured and competition from slot parlors in Pennsylvania and NewYork increased, siphoning away some of Atlantic City's customers byoffering them places to gamble closer to home."Despite the currentproblems in Atlantic City, I continue to have great faith in thecity's future," lcahn said in the statement.


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