Word: junks
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Dates: during 1980-1989
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...thing that seemed to tie many of those deals together was the financing role played by Drexel Burnham. In one sense that was unsurprising, since the company completely dominates the market for the high-interest junk bonds that have been issued to finance so many corporate mergers and buyouts. For other Wall Street firms even remotely connected with suspect deals, a major source of concern was the sheer sweep of Boesky's operations over the years. Said a member of the Goldman, Sachs investment house: "Most major brokerage firms executed trading orders for Boesky." Agreed another Wall Street analyst...
Meantime, the raider would make plans with an investment banker to raise the cash or credit needed for the takeover, often by launching a junk-bond issue. With such financial backing lined up, the raider could then announce a bid for the controlling interest in the target company's stock. By then, the necessary holdings might be in the hands of arbitragers, who would be waiting to sell at a still higher price than their own efforts had created...
...those operations are completely legal. But the close proximity of a small core of professional takeover specialists, and their towering importance in the market of the '80s, makes the prospects for collusion virtually endless. Since brokers and junk-bond dealers often know about a raider's plans well in advance of the general public, those professionals have the opportunity to tip off other investors or to make their own profits by trading in the target stock...
Their name may not seem to fit the gilded 1980s, but junk bonds have proved to be the hottest and most controversial financial instruments of the era. These low-grade, high-interest bonds have enabled corporate raiders to raise billions of dollars for ventures that have reshaped American business. Yet most investors have had persistent reservations about the safety of the securities. One concern is that too much of the underwriting and trading in junk bonds has been handled by just one firm, Drexel Burnham Lambert (last name pronounced Lamb-bear), which controls 50% of the market. If that...
Those long-suppressed anxieties surfaced last week as the insider-trading probe began to focus on Drexel and several of its top officials. Resale prices for many of the $120 billion in outstanding junk bonds slumped sharply, and investors wondered if the world of high-yield, high-risk finance was crumbling...