It was always a racing certainty that the junk bond mania unleashed by Drexel Burnham Lambert Group was going to end in tears, but what does the company’s filing for Chapter 11 bankruptcy mean for the companies like Prime Computer Inc, Memorex Telex International NV and Unisys Corp bowed down by the weight of junk bond debt? Immediately, it makes no difference to them – its hard for holders of their paper to find buyers for it, but that is the holders’ problem, not the companies’; what it does mean is that if those companies want to raise further cash, the junk bond route is closed to them, and there are not likely to be many highly-leveraged takeovers and buyouts in the future; takeovers will be funded by hard equity and the cash acquiring companies have in their lockers, which is the way it should have been done all along.
