The Drexel Burnham Lambert Group Inc. said Tuesday it had defaulted on about $100 million in loans and its board was expected to meet later in the day to examine whether to seek bankruptcy protection.
The investment firm also said its government securities subsidiary would "engage in an orderly liquidation" of its Treasury bond positions.But a statement by the financial group said it was "specifically excluding" its registered broker-dealer subsidiary, Drexel Burnham Lambert Inc., and Drexel Burnham Lambert Government Securities Inc., from any eventual filing for protection from creditors under Chapter 11 of the Federal Bankruptcy Code.
Drexel's announcement that it would consider bankruptcy proceedings came one day after the company had disclaimed rumors to that effect and announced it was seeking a major investor or a merger that could bring an infusion of cash to the heavily indebted securities operation.
The brokerage subsidiary said it had run into difficulties with its portfolio of high-yield bonds, best known as junk bonds, which Drexel led the market in underwriting and marketing in the 1980s. It said its parent company was having cash-flow problems, alluding to them in Tuesday's announcement.
"The liquidity problem affecting the holding company, The Drexel Burnham Lambert Group Inc., has resulted in defaults on approximately $100 million of loans, which could result in other defaults," the statement said.
"It is expected that the board of directors will meet later today to consider whether to seek relief under Chapter 11 of the Federal Bankruptcy Code for the holding company and certain of its subsidiaries, specifically excluding the registered broker-dealer subsidiary, Drexel Burnham Lambert Inc., and Drexel Burnham Lambert Government Securities Inc.
"With respect to GSI Inc., the firm intends to engage in an orderly liquidation of its positions," the statement said.