Word: drexel
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Dates: during 1980-1989
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Milken never put his big idea or his ambition aside. As a trader for the old-line Philadelphia firm of Drexel Firestone in the mid-'70s, he scorned colleagues who hewed to tradition and "spent from 11 o'clock to 2 o'clock at the racquet club." The dogged Milken soon discovered that junk bonds could provide much needed capital for medium-size companies that were unable, because of their size, to issue investment-grade debt. Other firms, notably Lehman Bros., had already tried minting bonds that were high yield from the outset. But Milken was the first to build...
Milken's junk bonds remained innocuous until the mid-'80s, when he began using the securities to raise mountains of money for hostile takeovers. In fact, the preferred opening salvo of corporate raiders became the dreaded letter from Drexel in which the firm stated it was "highly confident" of coming up with the necessary cash. In some cases, like T. Boone Pickens' failed bid in 1984 for Gulf Oil, Drexel charged a hefty fee for lining up money that it never had to deliver. But in many other raids, including Ronald Perelman's 1985 takeover of Revlon, Milken raised billions...
Milken's junk-bond department, which he moved from Manhattan to Beverly Hills not long after he formed it a decade ago, quickly became the engine of the Wall Street firm's furious growth. One reason is that junk bonds earn hefty fees: Drexel charges 3% to 4% of an offering's total value, compared with a fee of less than 1% for a higher-grade issue. Milken's web of buyers and sellers for the bonds has given him a virtual lock on the market, though the entry of such competitors as Morgan Stanley and First Boston has whittled...
Though Milken's title is only senior executive vice president, he has set Drexel's tone and direction during the past decade, according to many who deal with the firm. But his yen for control and lack of regard for convention, which served him so well in staking out his new financial realm, may have been what led him to allegedly illegal tactics. Says journalist Connie Bruck, author of the 1988 book on Drexel titled The Predator's Ball: "For years he's been a law unto himself. He has disdain for the way the world works. He figures...
...Milken is indicted on the racketeering charges, his workdays may become devoted to legal defense. Drexel could ask him to resign or take a leave of absence, while the investment firm would pay a fine to settle its own charges. The company has set aside more than $500 million for legal costs, and could spare $1 billion without dipping into its bare minimum of capital. Under racketeering charges, the Government could freeze so much of Drexel's assets that the company would be paralyzed, but prosecutors may want to avoid a punishment that would cost innocent workers their jobs. Drexel...