Sinking Feeling for Citi, JPMorgan

Likewise, the stalling out of these deals means that private equity isn't budging from its end of the bargaining table.

"For the banks to get stuck with Chrysler and Boots, it means that the private-equity firms aren't willing to give up the borrower-friendly terms they've become accustomed to," says one fund manager who speaks only on the condition of anonymity. These are the very terms that loan investors have recently stuck out against. These include weak covenants, meaning very little protection for the lender in the case of events that suggest deterioration in the borrower's ability to cover their liabilities.

So, with the buyers demanding more yield and covenant protection on one side, and private equity unwilling to amend the agreements they've made with the banks, these firms are stuck in limbo.

The banks' only recourse is to eat through the pipeline as best they can, and unload the loans when the market seems at its best. But with all this looming supply coming from the banks, not the debt issuers themselves, the credit markets are poised for further declines.

The prevailing sentiment among bank loan investors is, Why would anyone buy a comparable new deal, when they know the banks will be having a virtual closeout sale on all their piled-up loans sometime down the road? The game of chicken just further stalls the market for leveraged buyouts, and particularly those for the riskiest companies.