The Junk Bond Revolution

Fenton Bailey wrote this account of Michael Milken and the high yield bond market shortly after Milken's guilty plea in 1990. It covers the development of the market at Drexel Burnham Lambert and the prosecution that ended it.

The business material covers Milken's original insight, taken from W. Braddock Hickman's research, that a diversified portfolio of low-rated bonds produced higher risk-adjusted returns than the ratings implied; the development of the market from trading existing fallen angels to underwriting new high yield issuance; the network of buyers Milken assembled including savings and loans, insurers and mutual funds; the use of the market to finance leveraged buyouts and hostile takeovers, which made Drexel the centre of the takeover wave; and the compensation arrangements at Drexel that made Milken extraordinarily wealthy.

The prosecution material covers the Boesky settlement, the racketeering threat used against Drexel, the guilty plea and the firm's subsequent bankruptcy. Bailey is sympathetic to Milken and argues that the prosecution was driven by establishment hostility to a market that had threatened incumbent corporate management. That interpretation is contested and the book was written before the full record was available. The reference has not verified its detail. Readers wanting a fuller treatment should consider Connie Bruck's The Predators' Ball or James Stewart's Den of Thieves, which reach different conclusions.