Word: junking
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...decline is not comparable to the Great Crash. Experts maintain that it is a temporary pause in the bull market. A court decision leads Kodak to stop production of instant cameras and film, leaving the field to Polaroid. The Federal Reserve cracks down on the use of junk bonds in takeovers...
Wall Street's dealmakers have regarded junk bonds, the risky, high-yielding IOUs that have helped to fuel the current rash of mergers and acquisitions, as the juice that made the party go. Now the Federal Reserve is watering down the punch. Last week the board voted 3 to 2 to restrict the use of junk bonds in financing certain corporate takeovers...
...ruling, publicly announced to an overflow crowd of lawyers and lobbyists, stipulates that in certain cases junk bonds may represent no more than 50% of a takeover bid. To make an acquisition, shell companies--firms with no real assets--will be forced to pay half of the purchase price in cash. This could quash the efforts of crafty corporate raiders who have used nothing but junk bond debt to finance their billion-dollar takeover bids...
...rule, however, is far from all-embracing. The regulation will not apply if an acquiring company has "substantial assets," including real estate holdings, manufacturing operations, or any cash-generating business, to back up the takeover. Nor would the use of junk bonds be prohibited when two firms make a friendly agreement to merge...
...Wall Street, reaction to the ruling was mixed. Drexel Burnham Lambert, the investment firm that first used junk bonds, called the decision "unwise and unwarranted." Drexel points out that of the $18 billion worth of junk bonds issued last year, less than 20% was used in takeovers. One supporter of the Federal Reserve was Felix Rohatyn, a partner of Lazard Freres, an investment banking house, who has been a critic of the use of junk bonds in hostile takeovers. Said he: "This was a sound step to curb the most extreme uses of junk bonds...