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An '80s junk bond king may soon be taking over Ch. 13

In 1987, Denver media mogul George Gillett used the junk bonds of Drexel Burnham Lambert Inc. to buy four television stations, including WTVT-Ch. 13 in Tampa.

But $1.2-billion in junk bond debt turned out to be too heavy a load for Gillett Holdings Inc. It collapsed into a bankruptcy reorganization last year.

Now, a company controlled by Leon Black, a former junk bond kingpin at Drexel, is just the smack of a judge's gavel away from gaining control of Gillett.

If a Denver bankruptcy judge approves the recently submitted Gillett reorganization plan, Black will walk away with control of a $1-billion company after a $40-million investment.

Black, the former head of mergers and acquisitions for Drexel, was not specifically involved in the original junk bond issue, said Marc Rowan, a spokesman for Black's current firm.

But Black and other former Drexel executives are using Drexel junk bonds issued in the 1980s to gain control of fallen companies in the '90s.

"He definitely is profiting from the disasters that Drexel created," said Richard Lehmann, editor of the Defaulted Bond Newsletter in Miami Lakes. "But it's not untypical of what goes on in Wall Street every day.

"It's a back door way to gain control of a company where there are no regulations to prevent it," Lehmann said. "You use the bankruptcy in effect to do a leveraged buyout. There's going to be a lot of that."

Control of Gillett would give Black the power to determine the fate of Tampa Bay's No. 1-rated television station. His choices, according to the bankruptcy plan, include refinancing or selling the station.

Black did not respond to several requests for comment for this story.

In the past couple of years, he has gained the attention of Wall Street because, with the backing of a large French bank, he has a large pool of money.

Chubby, arrogant and, at times, brilliant, Black was considered something of an eccentric on Wall Street in the 1980s. He was known to arrive late for client meetings, and walk around with his shirt-tail hanging out of his pants, according to the Wall Street Journal.

Drexel chief Fred Joseph said Black's usual negotiating style "was to be as offensive as possible to the other side," wrote James B. Stewart in Den of Thieves, a controversial book about the insider trading scandal that rocked Wall Street in the 1980s.

In 1989, the 37-year-old investment banker earned a reported $20-million.

What Black and Drexel were hawking was the vaunted investment vehicle of the '80s: junk bonds. These are high-risk, unrated securities used by corporate raiders to take over companies. They were backed not by a company's existing profits and assets but by the potential revenue and assets from the takeover.

Black worked on the big deals, like Trans World Airlines, RJR Nabisco Inc., Beatrice Cos. and Phillips Petroleum, with the big corporate raiders of the day _ Carl Icahn, Henry Kravis, Rupert Murdoch and Frank Lorenzo.

And, of course, Black worked with Michael Milken, the junkmeister himself, who reigned over Drexel from his Beverly Hills, Calif. office.

Black was the only investment banker in the New York office who had Milken's respect, according to Den of Thieves.

Milken is now in prison after pleading guilty to charges of illegal trading. Drexel pleaded guilty to six felonies and paid $650-million to settle fraud charges.

Black has never been implicated in wrongdoing.

Of the huge takeovers and buyouts of the 1980s, the Gillett deal doesn't rank among the best known. But it ranks among the largest failures.

By the time Gillett and Drexel were through buying, Gillett was the nation's largest owner of television stations, owning 17 through various companies. Gillett Holdings, which became a ski-resort, communications and meat-packing conglomerate, owned three of those stations and carried about $1.2-billion in debt.

A good chunk of Gillett Holding's debt came from the $385-million acquisition of WTVT.

Gillett's debt was too much. After the company missed bond payments, creditors forced Gillett into bankruptcy last February.

And it was through bankruptcy court that Black found his back door.

When he left Drexel in 1990, Black and other former Drexel executives formed Apollo Investments. The company is named after the Greek god with the power of healing.

With their own millions, and more from Altus Finance, a subsidiary of the French bank Credit Lyonnais, Black scooped up billions of the high-risk junk bonds.

He bought most of the bonds on the cheap, paying much less than face value because many companies that had issued the bonds were failing.

In one deal, Altus and Apollo became the largest owner of junk bonds in the world, buying $5.3-billion of the high-risk securities from the ailing Executive Life Insurance Co. for about $3-billion.

Regulators seized Executive Life last year and the company declared bankruptcy, largely because its portfolio was battered by the fall in junk bond prices.

The contents of Executive Life's portfolio included about $140-million worth of Gillett's junk bonds.

Late last year, more than six months into the bankruptcy proceeding, Black's group suddenly emerged as Gillett's largest creditor.

That gave Black the power to become instrumental in the reorganization. Under the plan, Black's group will invest $40-million and become the majority owner with a 52 percent stake.

The plan has received the unanimous support of the creditors committee and is to be ruled on in March by the judge. Many involved with the bankruptcy believe the plan will succeed.

"The basic underlying premise is, here's a bunch of guys who had created the merchandise (junk bonds) to begin with, so who better to rescue and restructure it?" said Mariel Clemensen, director of high-yield research at Lehman Bros. in New York. "It may appear to be ironic, but many of us just think these guys knew the deals to begin with."