LEAD: AS the Hillsborough Holdings Corporation prepared its filing for bankruptcy last week, it became the darling of Wall Street. A parade of investment bankers, having sniffed out the fact that the highly leveraged company, formed in 1987 by Kohlberg, Kravis, Roberts & Company, was planning to file for protection from its creditors, came peddling their skills at reorganization.
AS the Hillsborough Holdings Corporation prepared its filing for bankruptcy last week, it became the darling of Wall Street. A parade of investment bankers, having sniffed out the fact that the highly leveraged company, formed in 1987 by Kohlberg, Kravis, Roberts & Company, was planning to file for protection from its creditors, came peddling their skills at reorganization.
''As news leaked out about Hillsborough, we got calls from four investment banking firms who wanted to help out,'' said Richard I. Beattie, a partner at Simpson, Thatcher & Bartlett who works with Kohlberg, Kravis.
The flurry of interest is indicative of the newest chase on Wall Street. With highly leveraged deals like the recent purchases of Resorts International and Federated Department Stores now coming unraveled, large investment banks and law firms see the makings of what may be a profitable business in the 90's: saving companies that are drowning in debt. ''Failure is a growth business,'' said one investment banker, summing up Wall Street's new attitude.
Most firms are now scrambling to become experts in the field. Major brokerage houses, including First Boston, Shearson and Drexel, are dedicating more resources to reorganizations and restructurings, setting off bidding wars for bankruptcy specialists. And many are talking about putting up the money to buy the debt of companies on the brink of bankruptcy, an activity that could provide new opportunities for merchant bankers who have seen other parts of their business fizzle.
Likewise, securities law firms with specialties in bankruptcy, like Weil, Gotshal & Manges; Fried, Frank, Harris, Shriver & Jacobson, and Wachtell, Lipton, Rosen & Katz, are bracing for a flurry of new business. ''In the past nine months, we have been busier than we have ever been,'' said Michael Cook, the partner in charge of the bankruptcy practice at Skadden, Arps, Slate, Meagher & Flom. ''I think a lot more business is coming down the road.''
Paradoxically, many of these investment banks and law firms are preparing to earn huge fees over the next few years correcting the mistakes they helped make in the fast-paced, fast-money dealmaking days of the 80's. And few on Wall Street find the concept odd. In their view, they merely act as architects for corporate chiefs who come to them with master plans. ''Wall Street survives not on the periods of ups or downs, it survives on volatility,'' said one investment banker. ''As long as people need financial engineering, Wall Street will be involved and will be making money as a result.''
In reality, making a profit by undoing its own deeds is a rich Wall Street tradition. These bankruptcy chasers, after all, are feeding off of a phenomenon they helped set in motion two decades ago. In the late 1960's, corporate boardrooms were haunted by the so-called conglomerateurs. Convinced that bigger was better, these empire builders thrived on acquisitions that were structured and financed by Wall Street brokerages. In the 1980's, when the idea of an efficient conglomerate was finally debunked, Wall Street helped takeover mavericks buy and break up the companies it helped build. And now, it is starting to repair the damage from its overzealous use of debt in those deals earlier in the decade.