Drexel to Assist Troubled Client in Restructuring

Cash-starved Integrated Resources Inc., a financial services firm, on Thursday unveiled a restructuring plan that included $300 million in new financing arranged by Drexel Burnham Lambert

The financial woes at Integrated, which earlier this month defaulted on nearly $1 billion of commercial debt, might affect the reputation of Drexel and its “junk bond” business, say some industry officials. Junk bonds are high-yield, high-risk securities pioneered by former Drexel employee Michael Milken.

Drexel and Integrated have an extensive relationship. It was Drexel that helped Integrated raise nearly $2 billion--most of it in junk bonds--to help finance the company’s expansion from a real estate partnership syndicator to a diversified financial services firm. A managing director of the New York investment firm also sits on Integrated’s board.

“They have been an extremely visible client of Drexel’s and one they have supported quite strongly and publicly,” said Los Angeles investment banker Fredric M. Roberts. “But I think it’s too easy to focus on the defensive aspects of this. I think that what Drexel is doing is proving that it’s standing up on the behalf of the individuals and institutions who bought the bonds and stock.”

‘One-Day Impact’

Recently, Integrated--which sells its products through a 4,600-person sales force--has seen revenue drop enough to make it difficult to cover costs, including an estimated $8 million in daily interest and principal payments on its short-term debt.

Intergrated’s financial problems would have little long-term impact on Drexel’s reputation, said Perrin Long, an analyst with Lipper Analytical. “Even if Integrated did file for bankruptcy protection, I’m sure it would have a one-day impact on Drexel. People would talk about it and then forget it.”

Drexel will buy one-third of the $300 million in the new securities to be issued by Integrated. Integrated, which outlined the plans during its annual shareholder meeting in New York, said it will use 90% of the proceeds to pay off a portion of its nearly $955 million in short-term debt.

The remaining short-term debt will be exchanged for other lower-quality securities and new common stock. As a result, the number of Integrated shares outstanding may double or triple under the plan.

The company said it was suspending dividend payments on preferred stock. Integrated also said it plans to sell its tax-sheltered annuity and life insurance business, as well as its interest in American Real Estate Partners, a limited partnership.

On the New York Stock Exchange, Integrated shares fell 25 cents to close at $4.25.