Bloomberg News

Attendance was "strictly limited" to the 400 people invited this month to the MGM Grand in Las Vegas to celebrate Michael Milken and the $640 billion junk bond market he created.

But it wasn't exactly a hot ticket. Only 100 people showed up, and there wasn't a Carl Icahn, Rupert Murdoch, or other big corporate raider in the bunch. To Alan Schlesinger and other Milken admirers who recall the excitement of Drexel Burnham Lambert Inc.'s annual bash at the Beverly Hilton in the 1980s, the High Yield Summit's sparse turnout was an indication of how low the debt securities that financed thousands of takeovers have sunk this year.

"It's a market that has created a lot of orphans," said Mr. Schlesinger, a director at BNP Capital Markets LLC, a subsidiary of Banque Nationale de Paris, echoing the complaint that junk bond trading has all but dried up.

For almost 25 years, junk bond critics predicted the demise of the market. Still, junk bonds proved indispensable, helping finance Time Inc.'s acquisition of Warner Brothers and RJR's takeover of Nabisco.

Even after Mr. Milken was jailed for securities fraud and Drexel went out of business in 1990, the high-yield bond market grew sixfold, driven by sales from emerging telecommunications and media companies such as Global Crossing Ltd. For the first seven years of the decade, junk bonds rewarded investors with average annual returns of 15%.

But the market reversed course after Russia's default, and junk bonds plunged almost 9% in three months, according to Merrill Lynch & Co. The market has not recovered, and no one sees a return soon to the $140 billion of junk bonds sold in 1998.

Junk bonds have returned 1.7% so far in 1999, according to a Merrill Lynch index. To lure investors, junk-bond yields have risen to almost 12%, about 6 percentage points more than on U.S. Treasury bonds. As recently as March 1998 that premium was about 3.4 points.

The bankers who attended the Las Vegas conference remembered better days, helped perhaps by a video of singer Madonna from one of the old Drexel parties. There also was a Marilyn Monroe impersonator.

The conference was a far cry from the "Predators' Ball," the title of Connie Bruck's 1988 book about the Milken parties in that bygone era, when revelers included corporate raiders James Goldsmith, T. Boone Pickens, Mr. Murdoch, and Mr. Icahn.

These days about a dozen securities firms, including Donaldson Lufkin & Jenrette Inc. and the Salomon Smith Barney unit of Citigroup Inc., are fighting over a shrinking number of new issues.

In the 1980s Drexel reaped as much as 4% of each sale of new bonds as its commission. Now competition has whittled that margin down to about 2.5%.

To bolster profits, bankers try to grab sole control of big offerings - $1 billion or more by companies such as Williams Communications Group Inc. and Nextel Communications Inc.

"Sub-$200-million sales are dead," said Steven Rattner, managing director of high-yield capital markets at DLJ. Only the best known companies, such as Level 3 Communications Inc., have any appeal, bankers say.

That is partly because defaults are at their highest level since November 1992. Iridium LLC and Sun Healthcare Inc. are among 142 companies that have skipped payments this year.

In a two-hour talk titled "The Promise of the 21st Century," Mr. Milken said the prosperity of the United States depends on financial innovations such as junk bonds. Mr. Milken, now banned from the securities industry, has built a second career in philanthropy since he was released from prison in 1993. In Las Vegas he spoke about education and health care, including research on prostate cancer, with which he was diagnosed a few years ago. His cancer is now in remission.

"At the end of the day, it's all about life, it's all about happiness," said Mr. Milken, who is worth $750 million, according to Forbes magazine's 1999 list of the 400 richest Americans. The crowd applauded and he left.

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