Insider Scandal Jitters May Slow Takeover Mania : Probe of Top ‘Junk’ Bond Dealer Raises Doubts on Financing for Some Deals

Takeovers have been the most awesome money machine on Wall Street. And the investment firm of Drexel Burnham Lambert frequently has been at the controls, revving things up by feeding the financial markets with high-interest bonds that it called “high yield” and others called “junk.”

As the insider trading scandal surrounding professional speculator Ivan F. Boesky widens, an atmosphere of fear and panic among securities professionals has enveloped Drexel. Federal investigators have subpoenaed a number of its officials, and the resulting speculation about who might be involved in the scandal has raised doubts about the ability of Drexel and other investment houses to complete takeovers and corporate restructurings that require junk bonds to be issued.

Troubles for Drexel and junk bonds could have widespread implications for the takeover wave that they have stirred up in so many different industries.

Stocks of real and rumored takeover targets fell sharply last week, although they recovered somewhat toward the end of the week. And Drexel and corporate raiders have felt obliged to assure the rest of Wall Street that their deals won’t fall apart.

While Drexel may lose some business, the firm has completed some hefty financings in the midst of the unfolding scandal. And new takeover assaults emerged last week.

Here is a look at how uncertainty in the takeover and junk bond market could affect various industries:

Airlines

The insider trading case could affect Texas Air Corp. and Trans World Airlines, analysts say.

TWA Chairman Carl C. Icahn, who took over the airline last year and then acquired Ozark Airlines and merged it into the larger carrier, has stated publicly that he intends to acquire still another airline. There have been rumors, for instance, that he has been quietly acquiring shares of USAir.

Much of Icahn’s financing has been in junk bonds arranged through Drexel. “If the Drexels of the world find themselves unable to function, it obviously reduces the potential for mergers,” said one airline analyst who insisted on anonymity. But with his ability to use the assets of a target company as collateral, Icahn may still be able to raise funds.

Texas Air, headed by Chairman Francisco A. (Frank) Lorenzo, is also highly leveraged. He owns New York Air and Continental Airlines and this year has acquired Eastern Airlines, People Express and Frontier Airlines.

Texas Air, though, won’t need any junk bond financing to complete the acquisitions. But if the Boesky case had erupted a year ago, observers say, Lorenzo would have had severe difficulties. Drexel is one of his major investment bankers.

For the most part, major established carriers have acquired other airlines with their own cash and bank credit lines--meaning that troubles in the junk bond market shouldn’t affect them.