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off commercial paper maturing on February 12, 1990, word of
Drexel’s liquidity problem spread through the market, and some
entities refused to trade with Drexel.
Drexel’s Bankruptcy Proceedings
On February 13, 1990, Drexel was advised by the SEC and the
Federal Reserve Bank of New York to file a petition pursuant to
Chapter ll of the Bankruptcy Code (chapter 11). Drexel’s board
of directors agreed to commence a chapter 11 case and, on that
date, Drexel filed a voluntary petition for relief pursuant to
chapter 11 in the U.S. Bankruptcy Court for the Southern District
of New York (bankruptcy court).
Beginning on the date of the bankruptcy filing, Drexel began
to wind down certain of its affairs and operations and
significantly reduced its operating expenses. After the petition
was filed, Drexel began to consider alternatives for the ultimate
resolution of its chapter 11 case. Financial projections for
Drexel and its subsidiaries were prepared, including sales values
for assets and an analysis of liabilities. The problems
presented by (1) growing litigation against Drexel, including
many suits pursuant to the securities laws, (2) the need to
resolve that litigation, (3) potential claims against Drexel by
the Internal Revenue Service (IRS), and (4) the difficulty of
quickly disposing of many of Drexel’s assets at amounts near
their book value weighed against liquidation of Drexel and
indicated the need for a reorganization of Drexel and an entity
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