Texas International Still May Press Drexel Case With PM-A Drexel Story
NEW YORK (AP) _ Texas International Co., which emerges from bankruptcy reorganization Monday, is expected to pursue claims that Drexel Burnham Lambert Inc. peddled fraud along with junk bonds during an 11-year relationship.
Drexel, the collapsed Wall Street firm, says it is entitled to about $14 million in new Texas International securities under terms of the oil company’s plan honoring obligations to creditors.
While other creditors will receive bonds and stock as part of the reorganization, Drexel’s claim is held up pending a decision by the company’s board later this month on what to do about allegations of wrongdoing by Drexel.
At issue is a report by a lawyer for Texas International stockholders alleging Drexel was guilty of fiscal irresponsibility and lawbreaking when it was the company’s financial adviser.
Drexel in 1977 issued its first corporate high-yield bonds for Texas International. In 1985-87 Drexel restructured $389 million of the company’s long-term debt to help it survive a severe oil industry slowdown.
Texas International entered Chapter 11 bankruptcy proceedings in April 1988. With its reorganization plan approved by a federal judge, the Oklahoma City-based company with holdings in Egypt, Malaysia, Australia and the United States emerges with a new name - The Phoenix Resource Cos. - on Monday.
In an attempt to challenge Drexel’s claim, a lawyer for the company’s equity securities holders committee investigated the firm’s behavior last year with approval of the bankruptcy court.
The committee justified the probe on the grounds that the terms of the debt restructurings arranged by Drexel helped push Texas International into Chapter 11. Drexel has denied any wrongdoing.
Bankruptcy law permits such a sweeping probe to determine the causes of a company’s problems.
The 53-page report by Milwaukee attorney Benjamin Waisbren was completed last November but was not made public until U.S. Bankruptcy Judge Richard Bohanon unsealed it following a request by The Associated Press last month.
Texas International’s interim president, Chip Lawrence, declined to comment on whether the company endorsed the report.
But one indication of support is that Texas International hired Waisbren as a special counsel to prevent Drexel from selling or transferring any of its Texas International holdings. Drexel has agreed not to move the securities.
Under the reorganization plan, the company is required to pursue litigation against Drexel unless its new board of outside directors decides otherwise. The board is scheduled to meet later this month and individuals close to the company expect litigation to proceed seeking to invalidate Drexel’s claim.
Even though Drexel’s parent company filed for bankruptcy court protection in February, the brokerage subsidiary still must address pending litigation.
The two bankruptcy cases could overlap. Since Drexel is liquidating its securities portfolio as it goes out of business, some of its holdings, possibly including Texas International, could be targeted to satisfy claims by Drexel’s own creditors.