Now What?: Why Money Managers Won't Dump Junk Bonds

• Published in: The Institutional investor (U.S. ed.) 1990-03, Vol.24 (3), p.43
• Main Authors: Meyers, William, Clark, Stephen, Rohrer, Julie, Lewis, Janet, Picker, Ida, Schultz, Janine
• Format: Magazinearticle
• Language: English
• Subjects: Bankruptcy; Business conditions; Investment advisors; Junk bonds; Pension funds; Scandals; Securities industry; Securities markets
• ISSN: 0020-3580

In February 1990, Drexel Burnham Lambert, the nation's 6th-largest securities firm and once its most profitable, became the first Wall Street investment bank to liquidate since the Depression. Drexel finally expired because it ran out of time, money, and the little goodwill that it had left. The firm's chief executive officer, Frederick Joseph, had been keeping Drexel alive, but he was unable to plan for its future. Drexel leaves behind a floundering junk bond market, but investors are not giving up on junk. Some are hunting for bargains, and there are signs of new investors in the market. Investors in this market see it as viable over the long term. The drying-up of liquidity in the high-yield market has effectively eliminated such bonds as a corporate financing tool for all but the best issuers. With the new-issue market at a virtual standstill, corporate finance departments are looking to do refinancings, exchange offers, and tender offers. First Boston Corp. and Bear, Stearns & Co. are considering selective hiring of former Drexel employees.