Creditors Get Drexel Plan for Reorganization : Wall Street: Under the proposal, the firm would issue notes to some creditors for the full amount owed them.

Drexel Burnham Lambert presented creditors on Wednesday with a tentative reorganization plan that at least nominally provides for full payment of debts and creates a much smaller post-bankruptcy company run by current management.

Sources said the tentative plan calls for smaller “everyday” creditors of Drexel’s brokerage unit, such as vendors and contractors, to be paid in cash. The rest of the company’s assets would be “up-streamed” to a new, post-bankruptcy company.

The debts owed to the remaining, mostly larger creditors would be paid off with notes having a face value equal to the full amount of the remaining debt.

But Barry Dichter, a lawyer at Cadwalader, Wickersham & Taft, which represents one Drexel creditor, said there may be strong opposition to allowing current Drexel executives to manage the post-bankruptcy company. “Drexel’s creditors are not going to want existing management to be in charge of the liquidation process,” he said.

The new company would focus mainly on managing Drexel’s remaining portfolio of junk bonds, bridge loans and other assets. By some estimates the portfolio is worth about $2 billion, but much of it isn’t sellable in today’s depressed market for junk bonds. Drexel executives contend that they will be able to realize more value from the portfolio by putting it in a post-bankruptcy company rather than liquidating everything immediately.

The new company also would be permitted to engage in other ventures, mainly related to investment banking. But sources said the scope of the activities wasn’t spelled out.

The plan was presented in a closed meeting with select members of the creditors committee in the offices of Drexel’s bankruptcy lawyers. It marks the start of what may be lengthy negotiations with creditors over a reorganization plan. Drexel has until June 13 to file a plan with the bankruptcy court but has requested an extension.

Drexel filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code on Feb. 13 amid sharp declines in the junk bond market.

Alan Miller, Drexel’s lead bankruptcy lawyer, failed to return a call seeking comment Wednesday.

Before the meeting took place, a Drexel spokesman said the purpose of giving creditors the tentative plan was “to try to get their reaction and work with them to try to hone a plan.”

Some creditors have expressed doubts about the true value of Drexel’s portfolio. One source close to the creditors committee complained that Drexel hasn’t yet told them exactly what’s in the portfolio.