Until the middle of 2007, the credit markets were essentially in a bubble. Underwriting standards were loose and there were fewer and fewer covenants.

As a result, many companies binged on debt financing such as for going-private transactions, stock buybacks and so on.

But, according to the Wall Street Journal [a paid publication], investors may now be taking some hits from their past sins.

Because debt had few restrictions, it made it easier for companies to hold onto their cash. Hey, might as well extend things and hope for things to improve, right?

That may be true, but what if things don't improve? Well, in that case, debt holders may see the value of their securities fall.

Take a look at Claire's Stores, which went private last year. The company's debt structure had paid-in-kind securities, which means that debt payments can be made by issuing more debt securities. So, when the company had to make a debt payment, it issued more debt -- not cash.

It's hardly something that encourages confidence. However, it appears that there's little that investors can do right now – that is, until things get much worse.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.