Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, April 16, 1991 TAG: 9104160533
SECTION: EDITORIAL PAGE: A-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Atypical - fortunately - among life insurance companies, Executive Life held nearly two-thirds of its assets in junk bonds. (The industry average is about 6 percent of holdings.) Last week, California regulators seized control of Executive Life. Now hundreds of thousands of policyholders face months, even years, of uncertainty about the value of their policies and annuities.
Chalk it up as another legacy of the 1980s, during which junk bonds were the darlings of the finance world.
The savings-and-loan bailout may be considered another legacy, in part: S&Ls were big buyers of junk bonds. Insurance companies also were good customers. Executive Life's high-flying former chairman, Fred Carr, was a friend and big customer of junk-bond king Michael Milken, who's now in jail.
Meanwhile, defaults on junk bonds are rising fast, reflecting the excessive indebtedness of many corporations - yet another legacy of the 1980s. Corporate-bond defaults zoomed to $26 billion last year, up from $5 billion in 1988 and $12 billion in 1989. Experts expect the figure to range from $35 billion to $50 billion this year.
By one estimate, roughly half of all junk bonds issued between 1985 and 1989 - the period when they were used to finance leveraged takeovers and other speculative Wall Street endeavors - will go into default.
Among the other consequences of the fallout in junk bonds is the difficulty small companies are facing in attracting new financing. By many indications, the effects of the excesses of the past decade will be felt for a long time.
by CNB