Word: junked
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Dates: during 1980-1989
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...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...
...years to come fully into focus. "Behind every great fortune there is a great crime," Balzac once said. "Great fortunes are made by solving problems" is the way Milken has preferred to see it. The Government's view should be known in a few weeks. The true value of junk bonds will take longer to determine...
Bankers, too, are taking a harder look at the risks, and some junk-bond buyers are becoming picky. While cash has poured in from such staid investors as the Harvard and Yale endowment funds and many state pension plans, other money managers are refusing to play. Says New York City comptroller Harrison Goldin, who oversees the investment of some $30 billion in pension funds: "I cannot condone activities that divert so much time and energy from investments that create new jobs and opportunities to those that reshuffle chairs. Pension-fund managers are supposed to invest in the American economy...
While that may be true, even the U.S. tax code is a strong ally of LBO artists. Since the interest on junk bonds and bank loans is tax deductible, companies like RJR Nabisco can borrow at Government expense. Some -- but not all -- of the Treasury's loss can be recouped from capital-gains taxes on the profits of shareholders who sell their stock...