Investment firm expands with aid of ex-Drexel Burnham Lambert bankers.

Investment firm expands office with aid of ex-Drexel Burnham Lambert bankers

Four months ago, 12 investment bankers from the Beverly Hills offices of defunct Drexel Burnham Lambert joined 12 bankers in the Century City offices of Donaldson, Lufkin & Jenrette, also an investment banking concern.

The marriage is working out, according to the two managing directors there, Steve Lebow, 36, and Kenneth Moelis, 32.

"We now have the critical mass of investment bankers needed to get a deal done, here in Los Angeles," said Lebow, in words echoed by Moelis. "We don't have to run back to New York for anything."

Lebow was managing director with Donaldson, Lufkin prior to the merger; Moelis had been a managing director at Drexel.

With 25 professionals, Donaldson, Lufkin now operates the third-largest investment banking shop in Los Angeles, exceeded only by Merrill Lynch and Bear, Stearns & Co.

Investment banks are where corporate chieftains go when they need money for a corporate acquisition, want to issue stock or bonds, or need advice on how to mount or fend off a takeover.

The investment bankers prepare prospectuses or structure debt or equity offerings, and sell the securities to institutional or retail clients or both.

These days, too, investment banks are increasing involved in "restructuring" corporate debt - i.e., working out a deal with corporate bondholders and other creditors to accept less than 100 cents on the dollar for their IOUs, often in exchange for equity in the debtor company.

With Drexel gone, and the junk bond market in turmoil, the Donaldson, Lufkin & Jenrette office in Century City has its hands full, said Moelis.

"In the high-yield market, for subordinated debt, we have really filled a void," he said. "We also are involved in the restructuring market, because that market requires an understanding of the high-yield market, of the equity market and, often, of the merger market."

Until the Iraq-Kuwait episode intruded, the high-yield subordinated debt market for private placements was showing signs of life, said Moelis. (A private placement is the sale of stocks or bonds not registered with the Securities and Exchange Commission. Usually, sophisticated institutional buyers, such as insurance companies or banks, are the buyers.)

Sone deals at the new, expanded Donaldson, Lufkin include: A $40 million stock offering by Sunland-based Cherokee Inc., the apparel manufacturer; a huge sale and financial restructuring of the financially strapped Southland Corp., the convenience store chain; the sale of Price Stern Sloan Inc., the Los Angeles-based publishing company; and a $150 million offering of medium-term notes for Occidental Petroleum, the Los Angeles-based oil giant.

Donaldson Lufkin is also working out a financial restructuring of Fairlanes Inc., a Baltimore-based bowling alley venture which has rolled a financial gutter ball. The company was purchased last year by the Deutschman Clayton & Co. merchant banking shop in West Los Angeles, in a Drexel-backed deal.

While Drexel had a reputation for getting deals done quickly, Donaldson, Lufkin actually can move even more quickly, said Moelis.

"At Drexel, at the end, we had more than 400 investment bankers. At DLJ, we have 130. There are less layers of management, and decisions get made quickly," he said.

When the 12 investment bankers from Drexel joined Donaldson Jenrette en masse back in April, there was much industry scuttlebutt that the merger would fail. Wags called the new, expanded office, "Drexel Lufkin & Jenrette."

Rumors have abounded about old ties and loyalties causing spats.

But both Lebow and Moelis said last week that the merger could not going more smoothly. "We did our homework before the merger," said Lebow. "We got good people, and we are lucky to have them."

Said Moelis, "Donaldson Lufkin wants to expand, and make a major mark on Los Angeles. That's what we are doing, and it is working well."

DLJ prefers to use local lawyers to sign off on its underwritings, and generally draws upon the firms Gibson, Dunn & Crutcher, Latham & Watkins, and Skadden, Arps, Slate, Meagher & Flom for counsel. In restructuring work, it draws upon Stutman, Treister & Glatt, the law firm specializing bankruptcy-reorganization work.

PHOTO : Steve Lebow, left, and Kenneth Moelis