A possible restructuring of Trump Hotels & Casino Resorts debt will likely hit restructuring triggers in credit-default swaps this year.
The credit community is watching Trump after the corporate made a late interest-rate payment on its debt in May. The corporate is seeking to restructure its debt and, if it did, this could be constituted as a distressed restructuring and would likely hit restructuring triggers on CDS, according to Edward Altman, the Max L. Heine professor of finance at the Stern School of Business and director of credit and debt markets research at the NYU Salomon Center. Trump and Delta Air Lines, are both also possible candidates to default on debt as early as this year, he added. Scott Butera, executive v.p. at Trump in New York, who is responsible for responsible for negotiating the restructuring talks with bondholders, said the firm is optimistic about the outcome of the talks. Katie Connell, spokeswoman at Delta in Atlanta, Ga., did not return calls.
Altman also noted a strong negative correlation between the number of defaults occurring in a short timeframe and the recovery rates of the defaulted debt, saying that by knowing the predicted rate of default, average recovery rates can also be accurately predicted. For example, if a large number of defaults occur at the same time, such as in 2002, an average recovery rate of around 25 cents on the dollar would be expected while in times of low default, such as this year the rate would be over 50 cents, he said.
