Tries to Dispel Recession Fears : Milken Touts Junk Bonds at Investment Conference

Amid jitters in the junk bond market he helped create, former Drexel Burnham Lambert Inc. financier Michael Milken said Thursday that there is “tremendous opportunity” for high-yield bonds despite a rash of recent defaults.

Milken, who is widely credited with reshaping corporate America through the use of high-yield debt securities but now faces federal fraud and racketeering charges, sought to dispel the notion that an economic recession could adversely affect junk bonds.

He urged the traders and other junk bond executives to evaluate companies’ worth on a case-by-case rather than industry-by-industry basis, because not all businesses and companies would necessarily fare badly.

Junk bonds are high-interest securities frequently used to finance corporate buyouts but predominantly used to raise capital for smaller companies.

Many Risks Involved

Critics say that in an economic slowdown, companies loaded with high-interest junk bond debt would default on payments because they would be unable to raise as much money as expected from their cash flows or the sale of divisions.

Several companies with major junk debts have sought bankruptcy protection, defaulted on payments or encountered serious financial troubles this year.

Milken and two others were charged in a 98-count indictment in March alleging conspiracy, racketeering, insider trading and other securities law violations stemming from his involvement in corporate takeovers at Drexel.

He resigned from Drexel in June to form his own financial consulting firm and prepare his defense for a trial set to begin next March.

Milken spoke at a conference on investing and trading in high-yield debt in New York sponsored by the Institute for International Research. Milken has appeared at similar events several times since his indictment.

Standing Ovation

His talk Thursday came after a large junk bond selloff a day earlier when Campeau Corp. indicated that it might default on debt payments at two of its department store affiliates. Campeau financed the buyouts of the companies with junk bonds.

Milken, who after his speech refused to comment on Campeau’s situation, said low interest rates on long-term government securities and strong equity markets this year create a positive climate to help finance businesses that need to grow.

“There is tremendous opportunity out there today,” he said.

“The market is saying give us more equity. Turn your debt into equity. Hopefully more people will listen,” Milken added.

Milken received an ovation from the roughly 130 people attending the conference and was praised for pioneering the $200-billion junk bond market.

“He really did this essentially by himself, with his notes, his sales ability and his telephone,” Paul T. Owens, president of Berkeley Capital Management and chairman of the financial research group, said in introducing Milken.

But, Owens added, indirectly referring to Milken’s legal troubles, “He won’t be able to tell you how he did it.”