Campeau's Enthusiasm for Junk Bonds Cools

ROBERT CAMPEAU has sworn off junk bonds. Following the bailout of his debt ridden Campeau Corporation, Mr. Campeau says that knowing junk bonds are available ``tends to make one too aggressive on the bidding.''

Campeau admits that easy financing through so-called junk bonds was a big part of his downfall. ``I believe this whole approach of high-yield bonds is going to have to change,'' said Campeau, ``and in fact I think the market for junk bonds is somewhat in jeopardy.''

Robert Campeau, a man who started his real estate career with a hammer in his hand, has lost control of his empire. But it could have been worse.

The empire in question stretches from the glitzy Bloomingdale's department store in Manhattan to Scotia Plaza, the newest and most expensive office tower in Toronto. But the foundation of the empire was built on so-called junk bonds and when the interest payments proved too high for the Canadian real estate entrepreneur, something had to go.

Campeau Corporation got into trouble when it financed the $6.6 billion acquisition of Federated Stores in the United States with junk bonds. The company's total debt is about $10 million. Bloomingdales's is on the block, as are other retail properties. But such a sale couldn't raise money soon enough and an immediate cash injection was needed.

The Reichmann family of Toronto came to the rescue with a $250 million loan. But it wasn't cheap money. The Reichmanns, already partners with Campeau, have increased their stake in his company and he loses control. The Reichmann share of Campeau Corporation will rise to 38.4 percent from 25 percent; Robert Campeau and his family will control 43.2 percent, down from more than 50 percent.

Campeau has described the new relationship with the Reichmann family as a 50-50 partnership. ``They're honest people. I've known them for a long time, I trust them implicitly, and I didn't think I would have gotten into a 50-50 relationship with anyone else,'' said Campeau when the deal was done last week. The board of directors has been trimmed from 21 members to 10. Three board members will be from Olympia and York Developments Ltd. (O&Y), the Reichmann private holding company; three will be from Campeau's team, including Campeau who will remain chairman; and four will be from the outside. William Miller, former chairman of the Federal Reserve Board, is an outside director and a member of a four-man committee that will be in charge of creating some financial order out of the debt chaos.

Gone from the board is Ohio shopping mall developer Edward de Bartolo. He was said to be holding up the bailout by Reichmann's O&Y.

Another outside director is Conrad Black, a Canadian newspaper publisher who among other things owns the Daily Telegraph in London. Mr. Black and Campeau own mansions on the same road in Toronto and Campeau was named to the board of Black's holding company, Argus Corp. Ltd. this past summer.

``He's lucky to skate out of this one,'' said a Toronto analyst whose firm will not allow him to be quoted by name. ``Campeau could have solved this problem in the spring when he could have taken a mortgage bond of $1.4 billion, but he didn't.''

Robert Campeau was born in northern Ontario. He quit school in the eighth grade and after a series of jobs ended up in Ottawa. He built his first house with his own hands. He then quickly expanded into the building of tract houses in expanding postwar Ottawa.

The move into commercial real estate followed. After building houses in which civil servants could live, Campeau built a series of office buildings where they could work. He leased them to the federal government.

Campeau branched out into development in Toronto, where he worked on developments along Lake Ontario. His final expansion came into the United States when he first bought Allied Stores and then Federated, the deal that almost put him under.

Now Campeau Corporation says that after it sells some assets, it may have to buy back about $415 million of convertible debentures. That would include about one third of O&Y's stake in Campeau, thereby protecting O&Y's original investment in Campeau.