cc Sunday, May 1, 2016 latimes.com/news

‘Drexel clearly put L.A. on the map for deal making. It forever changed the face of L.A.’ — LLOYD GREIF, a longtime local investment banker

Peter Nolan, left, is senior advisor and Jonathan Sokoloff and John Danhakl are managing partners of Leonard Green & Partners, a West L.A. private equity firm. All three worked at Michael Milken's firm, Drexel Burnham Lambert, in the late 1980s.

HIGH-YIELD BONDS Michael Milken’s proteges loom large in L.A.’s finance industry

By JAMES RUFUS KOREN TIMES STAFF WRITER

Grab a cheeseburger at the new One of Shake Shack's early inves- founders include John Kissick and Shake Shack in West Hollywood, buy tors was Leonard Green & Partners, a Antony Ressler. a roll of paper towels at the 99 Cents West L.A. private equity firm run by The Dolby is owned by L.A. de- Only store or take in a show at the John Danhakl and Jonathan Sokoloff. veloper and landlord CIM Group, co- Dolby Theatre in Hollywood and, in a The 99 Cents Only chain was ac- founded by Richard Ressler. small way, you're contributing to the quired in 2012 by Ares Management, All five owe at least some of their legacy of Michael Milken. a Century City investment firm whose success to the 1980s junk bond king, who, despite being banned from the from a financial backwater into a cap- vate lenders and other financial firms investment business a quarter of a ital for finance in the West. emerged. century ago for securities violations, Although Drexel was headquar- "It's serendipity that L.A. became still looms large in L.A.'s finance in- tered in New York, Milken, an Encino this fertile ground for innovative fi- dustry. native, moved its high-yield bond nanciers. That tracks back to one deci- They were among the scores of group to Century City in 1978 and sion by one individual 30-some odd investment bankers and bond traders later to the opulent Gump's depart- years ago," said Bobby Turner, who who came to Los Angeles decades ment store building in Beverly Hills. worked for Drexel in New York be- ago to work for Milken at Drexel He wanted to be closer to his family, fore heading west to join other Drexel Burnham Lambert, then one of the including his father, who had terminal alumni at Canyon Partners, a Century most sought-after investment banks in cancer. City hedge fund that manages assets the country. Southern California's finance in- of $21 billion. "Drexel became this white-hot dustry at the time was dominated by In L.A.'s close-knit finance indus- magnet," said Peter Nolan, another some large regional banks, such as try, Drexel alumni and their firms are Drexel alumnus who's now a senior Security Pacific, and few big money well connected and well-known, advisor at Leonard Green. "The real managers, including mutual fund firm though less familiar to outsiders. But financial power center was the high- Capital Group and bond investment many of the investments they've made yield floor and the guys who worked specialists TCW and Pimco, which and companies they've backed are for Milken. A lot of really smart peo- was farther south in Orange County. household names. ple figured that out, and they gravitat- A few Wall Street investment Canyon, for instance, in a joint ed toward Los Angeles." banks had offices in town, but those venture with former Lakers great After the firm's demise, brought on existed to serve local clients. Drexel's Magic Johnson, has been an investor by an insider-trading probe and tumult Beverly Hills office, on the other or lender on several major real estate in the junk-bond market, many of hand, attracted a regular stream of projects, including the massive One them stayed and went on to found limousines carrying executives from Santa Fe apartment and retail complex some of L.A.'s biggest investment New York and other parts of the in downtown L.A.'s Arts District. firms. country eager for Milken's counsel. The firm was founded in 1990, the Some will gather this week at the "Drexel clearly put L.A. on the same year that Drexel went under, by Beverly Hilton, just a few blocks from map for deal making," said Lloyd Mitchell Julis and Joshua Friedman Drexel's old office, for the Milken Greif, a longtime local investment — both veterans of Milken's high- Institute Global Conference. The four- banker and CEO of Greif & Co. "It yield bond practice. day event, put on by a Milken- forever changed the face of L.A. and Turner was a partner at Canyon endowed think tank, brings politi- cemented its position as financial cap- before starting his own firm, Turner cians, financiers and academics to ital of the West. I don't think there's Impact Capital, which invests in af- Beverly Hills each year, and serves as another person you could give more fordable housing projects and, in a a reunion of sorts for the Drexel alum- credit to than Mike in that regard." venture backed by retired tennis ni who remember the firm's glory Milken, who declined interview starAndre Agassi, facilities for charter days. requests for this story, experienced a schools. Milken transformed the once sec- famous fall from power after he was Ares Management, which makes ond-rate firm into a powerhouse by indicted on federal racketeering loans and private equity investments, creating the market for so-called junk charges in 1989 related to alleged in- has a portfolio that includes 99 Cents or high-yield bonds, loans to compa- sider trading. He later pleaded guilty Only and luxury retailer Neiman Mar- nies not previously considered credit- to more minor securities fraud charg- cus. worthy. es. Drexel filed for bankruptcy protec- Perhaps the highest-profile Drexel Those became the financial tool of tion amid the fallout the following alumnus is Ken Moelis, the founder of choice for many of the corporate raid- year, but the event was ultimately a investment bank Moelis & Co., which ers of the 1980s, and they briefly windfall for Los Angeles. has served as an advisor on hundreds turned Drexel into the most profitable Many of Milken's proteges had put of billions of dollars worth of corpo- investment bank on Wall Street. In the down roots in Los Angeles and want- rate mergers and acquisitions, includ- process, Los Angeles was transformed ed to stay. As a result, after Drexel's ing 2008's sale of beer giant Anheuser demise, a passel of buyout shops, pri- -Bush to brewing conglomerate In- Bev. "You've had so many of them that 30 you have the equivalent of 32 In the years since Drexel went were successful," said Todd Morgan, years of experience." bust, firms run or founded by mem- chairman of Century City wealth More than anything, though, work- bers of its diaspora have grown, been management firm Bel Air ing at Drexel was a chance to learn bought and sold, gone public and, in Investment Advisors, who knows from Milken. Regarded by some as a some cases, met the same fate as many of the Drexel alumni. Wall Street villain, Milken is still seen Drexel. "Statistically, it's hard to believe." as a role model by many of his former Ares Management, the largest lo- Former Drexel bankers and bond trad- colleagues. They used words like vi- cal firm that traces its roots to Drexel, ers trace much of their success to les- sionary, revolutionary and even here- went public in 2014, making founder sons learned at Drexel. tic to describe him. They recall his and Drexel alumni Ressler a billion- Drexel was a middling firm until famously long hours — and how he aire. On the other side of the ledger, Milken led its ascendance. It built its used them to test an employee's met- former Drexel bond dealer Gary Win- reputation by doing deals that more tle. nick went on to found Global Cross- traditional investment banks wouldn't, "Mike would rarely refuse a meet- ing, a telecommunications firm that in helping small, risky companies raise ing, even with the most junior person 2002 became one of the biggest U.S. capital for growth or backing outsid- on the floor, but he'd make you play firms ever to go bankrupt. ers who were trying to shake up the chicken a little bit," Ravich said. Successful or not, many of corporate world. "He'd say, 'I have a meeting at 5 a.m. Milken's acolytes will gather at this "In those days if you wanted to and a meeting at 4:30, but I can meet week's conference, the marquee event work for Goldman Sachs, the job of at 4.' If you came in early enough, put on by the Milken Institute, a Santa the banker was to figure out how to he'd meet with you." Monica think tank endowed by Milk- save Ford Motor Co. a quarter of a Eight months after Milken re- en and his brother Lowell, who also percent on the billions of dollars they signed, Drexel filed for bankruptcy on worked at Drexel. borrowed," said Danhakl of Leonard Feb. 13, 1990, dogged by the insider- Milken, 69, is worth an estimated Green. "That's not a trivial job given trading investigation and crippled by a $2.5 billion despite paying $200 mil- Ford's importance to the U.S. econo- downturn in the junk-bond market. lion in fines and hundreds of millions my, but a career spent trying to figure Fired employees started looking for more in civil settlements related to his out how to do that didn't seem inter- work, which wasn't easy because tenure at Drexel. esting to me." some Wall Street firms wouldn't hire He has spent much of the last 25 At Drexel, deals were more com- them — not because they'd done any- years funding cancer research — he plicated and more exciting, he said. thing wrong themselves, but because was diagnosed with prostate cancer, The firm helped finance such block- of their association with Drexel. now in remission, shortly after serv- buster deals as the 1985 hostile takeo- A handful of Drexel bankers — ing 22 months in federal prison — ver of cosmetics company Revlon and including Moelis, Danhakl and Nolan and doing other philanthropic work. the 1988 takeover of tobacco and food — went to the Los Angeles office of One event that's not on the confer- giant RJR Nabisco, a $25-billion deal investment bank Donaldson Lufkin & ence agenda is a dinner for Drexel that was the biggest leveraged buyout Jenrette. A few others, including Rav- alumni. It's equal parts class reunion, of its era. ich, went to investment bank Jefferies, networking session and homage to Demand for Drexel's services was then headquartered in L.A. both the man and the firm that so huge, and former bankers and traders Some thought they could do better many financiers in Los Angeles say there say the constant flow of busi- as investors and started or joined pri- have been key to their careers. ness gave them insight and experience vate equity firms in Los Angeles. At the dinner, there are speeches that proved invaluable later on. Those who went that route, such as and videos of old Drexel ads, war sto- "We were seeing eight times the Sokoloff of Leonard Green & Part- ries are told and friendships rekindled. amount of deals as our next closest ners, had relationships with Drexel But mostly, it's a chance to see Milk- competitor," said Jess Ravich, a for- clients that helped them scale up. The en, who remains beloved by those mer Drexel bond trader who's now a firm would later do a few deals with who worked with him. managing director at downtown L.A. Foodmaker Inc., a San Diego compa- "If Mike asked me for anything, I'd investment firm TCW. "So you get ny that had previously been financed do it," said Leonard Green's Danhakl. there at age 26, and by the time you're by Drexel. "I tell people, we all still work for Mike. He used to pay us."