It’s Official: Drexel Burnham Is History

Drexel Burnham Lambert, once one of the most powerful investment banking firms on Wall Street, ceased to exist Thursday and was succeeded by a small company that will manage its remaining junk bonds.

Trustees overseeing the liquidation of Drexel’s assets said the brokerage’s Chapter 11 bankruptcy plan of reorganization was consummated.

The trust is expected to make an initial cash payment of about $639 million to creditors in the next few days.

New Street Capital Corp., which has succeeded Drexel, has $479 million worth of assets. Most are high-yield bonds. All of the stock of New Street will be owned by the trust. Its president and chief executive is John Sorte, Drexel’s most recent chairman and chief operating officer.

New Street, with about 20 professionals, is a far cry from the Drexel of the highflying 1980s.

At its peak, Drexel had 11,000 employees and was one of the nation’s most profitable investment firms, raising billions of dollars to finance takeovers and mergers.

Founded in 1935 as Burnham & Co., Drexel began as a minor player on Wall Street. It was led to glory by junk bond guru Michael Milken, who pioneered high-risk, high-yield securities that were frequently used in takeover deals.

Drexel’s demise was caused by the very market it helped create. The collapse of the $200-billion junk bond market left it with hundreds of million of dollars in securities whose value plunged rapidly in early 1990.

That, coupled with Drexel’s guilty plea in 1989 to six securities felonies, spelled doom for the company. Its parent, Drexel Burnham Lambert Group, filed for Chapter 11 bankruptcy protection in February, 1990, the largest securities house in history to take this action.

Milken pleaded guilty to six felonies and is serving a 10-year prison term.