THE TROUBLE AT DREXEL BURNHAM LAMBERT : Firm’s Troubles Send Junk Bond Market Into Tailspin : Trading: The $200-billion market fell about 3% in overall value from the opening Friday to Monday’s close, with major issues falling as much as 5%.

Junk bonds, which have been living up to their name during the past six months, took another pummeling Monday after beleaguered Drexel Burnham Lambert disclosed that it is seeking investors or a buyer.

In addition to the Drexel news, traders said, another disclosure hurting the market was Friday’s scrapping of a $1.25-billion junk bond sale by the market’s biggest issuer, RJR Nabisco.

Overall, traders said, the $200-billion junk bond market fell some 3% in overall market value from the beginning of Friday through the end of Monday’s trading, with major issues falling as much as 5%. That comes on top of declines of as much as 20% to 40% in junk bond portfolios during the past year.

On Monday, major issues typically dropped 2 to 3 points, which means they fell $20 to $30 for every $1,000 in face value. As an example, an RJR Nabisco 15% bond maturing in 2001 fell 3 points to 67 1/8, while another RJR 13 1/2% bond maturing in 2001 closed at 88, down 1 3/8. RJR junk bonds are considered a good indicator of the direction of the overall market.

Traders said junk bond prices would have been hammered even more, except that there were so few buyers that some of the riskiest issues didn’t trade at all.

Junk bonds are risky debt securities issued by corporations that pay investors a high yield to compensate for their gamble. Drexel has long been the leading underwriter and trader of junk bonds, so Monday’s disclosure that the investment banking house is seeking investors or a merger partner because of its deteriorating financial condition is particularly ominous to the overall market.

Junk bonds became best known during the takeover boom of the 1980s when they were partly used to finance takeovers by corporate raiders such as New York financier Ronald O. Perelman, who bought Revlon, and Toronto businessman Robert Campeau, who bought the Allied and Federated retailing chains. Much of the market was developed by Drexel and its former junk bond chief, Michael Milken, who is currently facing felony charges for alleged securities violations.

Since mid-1989, however, junk bonds have tumbled in value. Investors have turned skittish in the wake of financial problems at such major issuers as Allied and Federated as well as casino operator Resorts International. In addition, new federal laws require savings and loans to sell their junk bonds by 1994, and investors fear widespread selling by insurance companies as well. General fears of a recession also are contributing to the decline.

On Monday, the junk bond market was hit hard early amid rumors that Drexel might even have to file for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code, which Drexel later denied.

But traders said a more real fear for them is that many junk bond issues won’t be refinanced if Drexel’s problems continue. That would mean bondholders could be facing unpredictable risks such as financial restructurings or bankruptcy proceedings.

Junk bond investors said they fear news of Drexel’s problems will spark even more widespread selling.

“You want to get out of the way. It’s the worst of the herd mentality,” said Ronald Vannuki, managing director of Drake Capital Securities in Santa Monica.

One problem traders face is that the junk bond market is not very liquid, meaning that, unlike stocks of major companies, holders of some issues have difficulty finding buyers. Some issues hardly moved in price, traders said, because no one wanted to buy them.

JUNK BOND HOLDINGS BY U.S. THRIFTS

Junk bonds* Percentage Savings and loan/headquarters (in millions) of assets Columbia Savings & Loan, Beverly Hills $4,114.3 35.41% Western Empire Savings & Loan, Yorba Linda 191.8 33.78 Mississippi Savings Bank, Batesville, Miss. 60.9 29.03 Far West Savings & Loan, Newport Beach 667.1 13.88 Imperial Savings, San Diego 1,316.7 11.96 Hunter Savings, Cincinnati 151.6 11.92 Centrust Bank, Miami 922.4 10.29 Lincoln Savings & Loan, Los Angeles 339.4 9.19 American Savings & Loan, Miami 448.7 8.85 Commonwealth Federal Savings, Margate, Fla. 124.1 8.05

Source: Alex Sheshunoff & Co.

JUNK BONDS TAKE A HIT

The following shows how selected junk bonds were affected by news that Drexel Burnham Lambert is seeking a merger partner.

One point equals $10 per $1,000 face amount.

Bond Monday close Change Carolco Pictures (14% due 1993) 86 1/8 -1 7/8 Circle K (13% due 1997) 29 -1 1/2 Golden Nugget Finance (13.25% due 1995) 84 - 1/2 Mark IV Industries (13.375% due 1999) 98 -3 RJR Nabisco (floating rate due 2007) 61 1/2 -3 RJR Nabisco (15% due 2001) 67 1/8 -3 RJR Nabisco (13.5% due 2001) 88 -1 3/8 Reliance Group Holdings (14% due 1996) 92 5/8 -1 3/8 TWA (12% due 2001) 43 -3 Williams Electronics (12.75% due 1996) 97 -1