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.

What is up is the theme of this week's merger talk, because there is lots of chatter, but no bold moves. Yet.


NEW CENTURY FINANCIAL CORPORATION (NYSE: NEW)

Down the tubes, and then what? With bankruptcy imminent, what next happens to the nation's second largest sub prime mortgage banker? Shares continue to fall today, recently at $3.18, a 69 cent fall, equal to almost 18%. Just two months ago the share price was over $30. The real estate investment trust isn't getting any help from lenders. Maybe reorganization is just what they need.

PALM INC (NASDAQ: PALM), DELL INC (NASDAQ: DELL)

Or should it be Dell, Palm? Either way, Palm is looking to sell, and Dell is looking to buy. Palm knows Apple Inc's (NASDAQ: AAPL) iPhone can really hit them with a number of body blows, hence, get out while the getting's good, or at least okay, seems to be the Palm plan. For Dell, they're looking at smart phones as a part of their consumer products future. And lord knows they have the cash to buy a Palm. It's a brand with international contacts and a retail distribution network. Let the bidding begin, say at $2B?

NOBLE DRILLING CORP (NYSE: NE)

A noble "no" to an LBO was sent out from high atop the corporate structure several weeks ago, but rumors keep a coming. Yes, they said they'd use their extra dough to buy their own stock, just like they did before, in 2006. And that's what they've been doing. Who knows, maybe there's nothing to it.


CLAIRE'S STORES INC (NYSE: CLE)

Private equity firm Apax seems to be in the lead to take the 3,000 stores-strong Claire's. Get this: Apax is said to be so anxious to get going that it's said they have new management "in waiting." Wow. Claire's has said it's exploring "strategic alternatives", including a sale. Goldman Sachs is helping. Must be serious stuff. By the way, same store sales were up but down recently. Up 1%, but 2.3% was expected. What do you think Apax feeds that management team in waiting, anyway?

ALLTEL CORPORATION (NYSE: AT)

Buy me, please. That's what the nation's fifth largest wireless operator (subscribers) has been saying. AT&T is kicking the tires, but because of antitrust and other issues, it may only be doing just that. Verizon Communications Inc (NYSE: VZ) may have a look-see, as well as private equity firms. Tepid seems to have been the response so far, but that can change quickly. Management says the rumors are nothing new. Is that a bad thing?