Loans and money issues

In its simplest form, a bond is a financial obligation of an entity that promises to pay a specified sum of money at specified future dates. The entity that promises to make the payment is called the bond issuer and is referred to as the borrower. Bond issuers include central governments, municipal/provincial governments, supranational (e.g., the World Bank), and corporations. The investor who purchases bond is said to be the lender or creditor. The promised payments that the bond issuer agrees to make at the specified dates consist of two components: interest payments and repayment of the amount borrowed.
Prior to the 1980s, bonds were simple investment vehicles. Holding aside default by the bond issuer, the investor knew how much interest would be received periodically and when the amount borrowed would be repaid. Moreover, most investors purchased bonds with the intent of holding them to their maturity date. Beginning in the 1980s, the bond world changed. First, bond structures became more complex. There are features in many bonds that make it difficult to determine when the amount borrowed will be repaid. For some bonds it is difficult to project the amount of interest that will be received periodically. Second, the hold-to-maturity investor has been replaced by the institutional investor who actively trades bonds. These new product design features in bonds and the shift in trading strategies have lead to the increased use of the mathematical techniques.

Due diligence is a difficult process from which to get good business results. It has an intensive legal and accounting aspect to it that involves large numbers of accountants and lawyers working long hours in unpleasant conditions. There is also a need for secrecy and speed, since leaks can prompt problems with securities regulators, customers, suppliers, and employees. Beyond this, many participants are either inexperienced or not sure what they are looking for. And many people do not want to be the bearer of bad news, especially as the process becomes more frenetic and the CEO and others get more excited about doing the deal. Put it all together and sometimes even major problems, including accounting and legal problems that should have been caught, slip through and blow up, usually in the year after closing.