Word: milken
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...Michael Milken, 40, senior executive vice president of New York City's Drexel Burnham Lambert investment firm. Milken, who works out of branch offices at the tony corner of Beverly Hills' Wilshire Boulevard and Rodeo Drive, is the guru of the so-called junk bond, the high-interest but risky investment vehicle that has provided much of the financing for the stock market's takeover frenzy (see box). At least five other Drexel Burnham employees, including Milken's younger brother Lowell, have also been subpoenaed...
...companies that had run into financial trouble. Standard & Poor's, the investment-research firm, classifies junk bonds as those rating lower than BBB on a scale of AAA to D. Few prudent investors wanted to touch such securities until the 1970s, when a young Drexel investment banker named Michael Milken began touting them as a good deal. He contended that their high yields, typically 3% to 5% above those of U.S. Treasury bonds, were extremely attractive, since junk bonds had historically gone into default only slightly oftener than more reputable securities...
...Milken began underwriting new junk bonds in the late 1970s, using them primarily as a financing tool for companies that were too small or unproven to issue investment-grade bonds. In early 1984 Milken began using the bonds to finance takeover bids. Until then virtually the only way to raise money for a corporate raid was to borrow the cash from banks, which often attached too many strings. Milken was able to raise the billions necessary for a mega-deal by assembling a network of high-rolling investors whom he could call upon to buy junk bonds, or to promise...
...this year. Fees from those securities helped catapult Drexel from a second-tier investment house, ranked eleventh in 1978, to one of the three or four most powerful firms on Wall Street. Drexel's 1986 revenues will reach an estimated $6 billion, up from $4 billion last year. Milken has prospered even more stunningly. By far the most highly compensated Drexel employee, Milken, now 40, has amassed a fortune, estimated at more than $500 million. Yet Drexel's empire could fall apart rapidly if it is found that Milken or other employees systematically leaked inside information about their takeover financings...
...deal maker behind Pickens and most other corporate sharks is the investment firm Drexel Burnham Lambert, which controls nearly 75% of the junk- bond market. Drexel's Michael Milken, 39, developed today's market in junk bonds almost single-handed after researching them in 1969 as an M.B.A. student at Wharton School. Milken showed that junk bonds defaulted only slightly more often than prestige certificates, yet paid interest rates 3% to 4% higher. During the late 1970s, he patiently persuaded such big investors as pension funds and banks that the bonds were safe, and Drexel began issuing mounds of them...