Big Fat Wall Street Bonuses Imperiled

It's not an issue of whether these deals will get done. They will. The big question is how much money individual banks will have to swallow to see them through.

But sources tell TheStreet.com that hedge fund investors, who have been the biggest buyers of leveraged loan paper, have been holding bankers over a barrel. The investors have taken to offering to purchase warehouse lines at between 80 and 85 cents on the dollar.

Other hedge fund managers and investors in collateralized loan obligations, smelling blood in the water, are sitting on the sidelines with the expectation prices will continue to fall. Of course, they could soon have their own liquidity worries if their prime brokers -- the same Wall Street banks now stuck with huge loans they can't sell -- run into trouble.

Up until the past several days, stress in the credit market has been in stark contrast to the stock market's push toward 14,000. What happened?

The problem starts with the terms at which many of these deals were underwritten during the buyout binge. Deterioration in the subprime market, which continues to up-end hedge funds and trip up big banks like Bear Stearns, has spotlighted underwriting quality and caused banks to ask for a bigger premium to hold risky paper.

Now the traditional buyers of risky paper are balking.