Dec. 28 (Bloomberg) -- Citigroup Inc., Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. are offering discounts of as much as 10 cents on the dollar to clear a $231 billion backlog of high-yield bonds and loans.

``The market can absorb all of these deals,'' said John Eydenberg, head of leveraged finance for the Americas at Deutsche Bank AG in New York. ``It is a question of time and price.''

While lenders reduced the overhang by 32 percent since July, they are struggling to unload debt from this year's record $438 billion of leveraged buyouts after losses from securities linked to subprime mortgages reduced demand for higher-yielding assets, according to data compiled by Bloomberg. They sold some bonds at a discount of 10 percent to face value and loans at 5 percent below par, according to London-based Barclays Plc.

Bankers led by Goldman and Citigroup hold $17.5 billion of debt they couldn't sell from the purchase of Little Rock, Arkansas-based wireless carrier Alltel Corp. Lenders including Bank of America Corp., Deutsche Bank and JPMorgan committed to lend $22.3 billion next year for the purchase of Las Vegas-based casino company Harrah's Entertainment Inc., according to filings with the U.S. Securities and Exchange Commission.

Banks including Citigroup, Deutsche Bank and Morgan Stanley will provide $22.1 billion for the acquisition of radio broadcaster Clear Channel Communications Inc. in San Antonio. Banks including Citigroup and Toronto-Dominion Bank are on the hook for $34.3 billion for Montreal-based telephone company BCE Inc., according to SEC filings.

`Golden Era'

Toronto-Dominion, based in Toronto, monitors the number of its deals so it isn't holding too many if there's a market disruption, said spokesman Nicholas Petter.

``You only take risks when they're transparent and you can measure them,'' Petter said. ``We're comfortable with where we are.''

Goldman spokesman Michael DuVally, Morgan Stanley spokeswoman Jennifer Sala and JPMorgan spokesman Brian Marchiony declined to comment. Citigroup spokeswoman Danielle Romero- Apsilos didn't immediately return calls seeking comment. All are based in New York. Christopher Feeney, a spokesman for Charlotte, North Carolina-based Bank of America, also declined to comment.

LBOs declined to $101.9 billion in the second half from $336.4 billion in the first six months as the subprime market collapsed.

The extra yield investors demand to own high-yield bonds, those rated below BBB- by Standard & Poor's and Baa3 by Moody's Investors Service, rather than Treasuries widened to 5.64 percentage points yesterday from a record low of 2.41 in June, Merrill Lynch data show.

Absorbing an Elephant

Interest rates on loans rated B rose to 4.28 percentage points more than the three-month London interbank offered rate, a lending benchmark, from a low of 2.13 in February, according to S&P. Libor is 4.73 percent.

Lower premiums earlier in 2007 allowed private-equity firms led by Kohlberg Kravis Roberts & Co. and Blackstone Group LP to pursue the biggest LBOs ever. Henry Kravis, head of New York- based KKR, said at a conference in Halifax, Nova Scotia, in May that the business was in a ``golden era.''

Buyout groups, which use their own funds and debt to pay for takeovers and then improve profit by boosting sales, selling assets and cutting costs, required lenders to provide funds while subprime contagion spread. The collapse closed the high-yield market for much of July and August.

Banks have $161.9 billion of loans and $69.6 billion of bonds left to distribute, according to JPMorgan data.

``A python that swallowed an elephant is being absorbed through the system,'' said Mario Gabelli, chief executive officer of Rye, New York-based Gamco Investors Inc., which has $31.6 billion in assets under management.

Biggest Deals

Lenders began to tackle the backlog in September, when KKR's banks sold $9.4 billion of loans to finance the LBO of Greenwood Village, Colorado-based credit-card processor First Data Corp.

The loans, offered at a 4 percent discount, cost Zurich- based Credit Suisse Group, Frankfurt-based Deutsche Bank and four others about $360 million, data compiled by Bloomberg show. They issued $2.2 billion of bonds at a loss of $114 million, based on the price of the securities, leaving them with $10.4 billion of debt that still needs to be sold.

Banks scratched $51 billion off the list after firms including New York-based J.C. Flowers & Co. and Cerberus Capital Management LP abandoned deals.

Genesco Inc. the Nashville, Tennessee-based shoe and clothing retailer, yesterday won its bid to force competitor Finish Line Inc. to complete a $1.5 billion acquisition. A Tennessee judge barred Finish Line of Indianapolis from walking away from a June deal to buy Genesco.

Clear Channel, Alltel

Lenders for Bain Capital LLC and Thomas H. Lee Partners LP need to sell $2.6 billion of bonds and $19.5 billion of loans that will pay for the purchase of Clear Channel. Banks are raising as much as $23.1 billion in loans and $11.3 billion of notes to fund BCE's takeover by the Ontario Teachers' Pension Plan, the biggest-ever LBO.

They have $17.5 billion of debt for the Alltel purchase. Alltel issued $3.2 billion of its $14 billion in planned loans on Nov. 16 at 96 cents on the dollar. A sale of $7.7 billion of notes failed to attract enough investors, and Alltel pulled that deal. It later sold $1 billion of notes at 91.5 cents on the dollar.

``It will be important to get this Alltel deal done in an orderly fashion,'' said Manny Labrinos, who helps oversee $2 billion as a bond fund manager at Nuveen Investment Management in Los Angeles. It may take until October to sell all the debt, he said.

To contact the reporters on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net; Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: December 28, 2007 09:28 EST