A recent headline, "Trainwreck", in a daily market roundup published by Standard & Poor's overstates the state of the debt financing markets in the US and Europe. But not by much. After several years in which debt financing was readily available on attractive terms to private equity funds and other corporate borrowers, the debt markets have taken a sharp downward turn.

The decline follows a slowdown in the market for collateralized debt obligations (CDOs). CDOs have been active investors in the debt issued to private equity funds and strategic buyers in acquisition financings. S&P estimates that, until recently, CDOs purchased 60% of the loans made to finance US acquisitions. This ready availability of capital made it much easier for lead arrangers in bank financings to find buyers for the debt they had committed to provide.

Typically, in a leveraged acquisition financing, a bank will commit to provide large...