Wall Street's dealmakers have regarded junk bonds, the risky, high-yielding IOUs that have helped to fuel the current rash of mergers and acquisitions, as the juice that made the party go. Now the Federal Reserve is watering down the punch. Last week the board voted 3 to 2 to restrict the use of junk bonds in financing certain corporate takeovers.
The Fed's ruling, publicly announced to an overflow crowd of lawyers and lobbyists, stipulates that in certain cases junk bonds may represent no more than 50% of a takeover bid. To make an acquisition, shell companies--firms with no real assets--will be...
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