In many failed transactions, bankers and loan committees felt great pressure to keep up with their peers and generate big up-front fees, so they approved hihgly questionable loans. In other cases, each participant assumed someone else had carefully done the homework. Buyers assumed that if they could get financing, the deal must be good (the banker and investment banker may have done the homework). High yield bond investors figured that the commercial bankers providing the senior debt must surely have worked their numbers properly. Afterall, the bankers selling the bonds had their reputations at stake, and the buyers had some capital in the game as well.
Page 16
Valuation
McKinsey & Company 4th edition
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