NEW YORK, FEB. 19 -- Drexel Burnham Lambert Group Inc., the Wall Street firm that boomed in the 1980s but crashed into bankruptcy a year ago after pleading guilty to securities law violations, may soon be back in business after striking a tentative $20 billion deal with creditors, a judge said today.
The deal would let Drexel -- which turned a simple idea about bonds into an engine for some of the biggest takeovers ever -- escape the mounting threat of liquidation.
Federal Judge Milton Pollack said Drexel's big creditors and claimants, including the Federal Deposit Insurance Corp., tentatively agreed to drop at least $20 billion of bankruptcy claims and must now hammer out details. The plan would limit claims to about $2.1 billion of Drexel's $2.8 billion assets.
No other details were released on the terms of the pact or the breakdown of the claims.
"If they haven't got an agreement, the inexorable effect is that the assets may have to be liquidated," Pollack, one of two judges presiding over the matter, said in an interview.
News of the possible deal came a year after Drexel filed for protection from creditors under Chapter 11, allowing it to submit a reorganization plan.
Pollack said he had initiated a process that could lead to liquidation of Drexel under Chapter 7 of the bankruptcy code, giving both sides an incentive to shake hands on the claims.
Lawyers said a long fight or sell-off would likely swallow up most of the firm's assets, leaving the claims worthless. And despite hope of a deal, Drexel still faces a claim for $5.28 billion in back taxes from the Internal Revenue Service.
The preliminary accord was presented in an extraordinary court proceeding Monday, and Pollack said lawyers for creditors would need to consult their clients to work out details.
Drexel, which admitted to six felonies and paid $650 million in fines and penalties, today has a skeleton staff of about 350 people, most handling financial and legal matters.
Sources familiar with Drexel said a deal could let it press ahead with reorganization. But that would take time.
"It will be a number of months before we could get it approved and get back to business," said one of the sources.