With bankruptcy and restructuring firmly behind it, Donald Trump's casino empire has a shot at regaining its former luster.

Doing so will take lots of elbow grease, however, and there will be little room for error. That's because the competition, which is already transforming Atlantic City, N.J., from a tour-bus destination into an entertainment mecca for the young, hip and rich, has a big head start.

Even though Trump, the real estate mogul and reality-television star, has picked seasoned casino executives, not apprentices, to lead Trump Entertainment Resorts ( TRMP), they have their work cut out for them.

"Despite years of industry experience, new management is faced with many challenges in turning around the Trump properties that include the stiff competition from Borgata, the expanded Tropicana and Resorts, and other Atlantic City operators upgrading their properties," Kimberly Noland, an analyst at bond research company Gimme Credit, wrote in a research report.

Struggling under some $1.83 billion in debt before its prepackaged Chapter 11 filing last November, the business -- which owns three Atlantic City casinos and a smaller Indiana resort -- found itself without the necessary cash to renovate and expand its casinos, even as rivals were improving old properties and breaking ground on new ones.

One symptom was hotel rooms in "dire" need of renovation, the company's new CEO James Perry acknowledged during the company's second-quarter conference call in August.

From 2000 through 2004, total capital spending at Trump's Taj Mahal on the northern end of the Atlantic City boardwalk was $110.3 million, according to figures from the New Jersey Casino Control Commission. Over the same period, capital spending at Aztar's ( AZR) Tropicana was $374.4 million and $262 million at Harrah's Entertainment's ( HET) Showboat.

That period also saw the July 2003 grand opening of the Borgata, a $1.1 billion joint venture of Boyd Gaming ( BYD) and MGM Mirage ( MGM) that upped the ante in Atlantic City. With 2,000 room and suites, 11 restaurants, 11 boutiques, a spa and theater, the Borgata draws well-heeled overnight visitors interested in a multifaceted experience.

The resort has vaulted to the top of the pack, with net revenue for the first six months of this year outpacing the closest competitor, Bally's Atlantic City, by $50 million. Bally's is owned by Harrah's.

More Money

Trump's outfit emerged from Chapter 11 in May having slimmed its debt load to about $1.43 billion. The company is also paying 8.5% interest on its restructured debt, down from pre-bankruptcy rates of 11.25% and higher.

"Their chances are a lot better now than they were before they refinanced," says Bradford Smith, who runs International Gaming Consultant Services and is a former chairman of the New Jersey Casino Control Commission. "Trump was always sort of a MAC-machine for banks and financiers. Now he's lifted some of the debt, and has more money to be put back into the properties."

Although Trump's name remains at the front of the company's moniker -- and in abbreviated form in its new ticker -- the well-known dealmaker will have a more hands-off role in the restructured business. Although he remains chairman, Trump ceded the CEO's job to Perry and brought other seasoned outsiders into the business. He even sat out the second-quarter conference call.

Perry has a reputation for reversing corporate fortunes. Before retiring as CEO of Argosy Gaming ( AGY) in 2003, he boosted that company's revenue and returned it to sustained profitability. (On Monday, Penn National Gaming ( PENN) completed its $2.2 billion acquisition of Argosy.)

Working alongside Perry is new Chief Operating Officer Mark Juliano, who was president of the luxurious Caesars Palace casino in Las Vegas, now owned by Harrah's. He's no stranger to Atlantic City either, having run the Caesars casino there from 1994 to 1999. He also has a reputation for being able to woo high-rollers.

Other recent hires include Jim Rigot, a Borgata veteran who will soon take over as general manager at the Trump Plaza.

Smith says if any management team is equipped to take on Trump Entertainment's challenges, the current one is. The company has already made some progress, having renovated all of its hotel rooms except for 300 at the Trump Marina, which like the Borgata, is located in Atlantic City's marina district.

Stiff Competition

On the second-quarter earnings call, Perry said his team will spend the next 18 months improving margins at existing properties. One focus will be making marketing efforts more cost-effective.

Perry and his lieutenants are working on a capital spending plan, which they hope to share with investors by the end of the year. It could include renovations to casino floors and restaurants, as well as new concept restaurants. They're also working on plans for a new hotel tower at the Taj Mahal, which could add 1,250 rooms, although such a project would take about three years to complete.

Adding hotel rooms would probably be a wise move, says Smith. Given Atlantic City's chronic shortage of hotel rooms, resorts that add new towers typically see a boost to business.

After addressing some of its immediate challenges, Trump Entertainment might seek to expand into other markets, Perry said in the second-quarter call. The company's announcement Monday that it had entered into an option to lease an 18-acre plot in Philadelphia shows it's already making plans to do that.

However, even as Trump's new executives roll up their sleeves, competitors aren't standing still. The Borgata is planning a $200 million public-space expansion to be completed next spring and a $325 million 800-room hotel expansion scheduled for the fourth quarter of 2007.

Next year, Caesars plans to open "The Pier," a 500,000 square-foot dining, shopping and entertainment complex on the boardwalk.

"The other Atlantic City resorts, they're destination resorts," says Gimme Credit's Noland. "Trump needs to get to that quality level. But in the meantime, it needs to get its stable of existing customers to keep coming."

Although Noland says Trump Entertainment's future has plenty of risks, she says bondholders are currently being compensated appropriately. The bonds were yielding almost 9% late last week, making them an "interesting" investment, especially when many other gaming securities are trading with lower yields relative to government securities, she says.

As for the stock, which has navigated a range of $12 to $21.50, Noland considers it fully valued around $19 and has encouraged investors to buy it on significant dips. Shares closed at $18 Monday. Noland owns no positions in Trump Entertainment and Gimme Credit does no business with the company.

Given that Trump's shareholder meeting this Thursday is unlikely to yield substantial new insights into the company's plans, investors will focus next on third-quarter earnings, expected near the end of the month.

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