Citigroup is in talks with KKR to provide financing to buy some of the leveraged loans on its balance sheet. It has also talked to other private equity firms about providing such funding.

However, people close to the talks say such deals have so far proved difficult to structure. KKR

Banks have been looking for ways to help clear some of the $300bn worth of leveraged loan commitments they have made but are struggling to sell on to investors following the credit turmoil.

The talks with KKR's asset management arm have brought together the private equity firm responsible for some of the biggest leveraged buy-outs in the run-up to the credit freeze and the investment bank that agreed to provide the financing for many of the deals.

Investors, including private equity firms, see opportunities to snap up loans, while traditional buyers are cautious. KKR is raising money for an existing hedge fund to buy leveraged loans and other impaired debt. A number of banks, including Lehman Brothers, are raising special-purpose vehicles to buy leveraged debt.

The new investors are keen to gear up on their purchases and have asked banks such as Citi to provide financing. But the nature of syndicated loans makes such deals difficult to structure.

Over the summer, investors' appetite for leveraged debt dried up, leaving the banks unable to sell on their loans except at losses.

But last week a group of banks, including Citi, sold about half the $15bn loan package for KKR's takeover of First Data Corporation at lower losses than many observers had expected.

There are rumours that the combined firepower of all the funds being raised to buy leveraged buy-out debt could equal as much as $170bn, which compares with the estimated $300bn of funding banks have committed to private equity firms.

Regulators are watching for signs that the financial industry is developing solutions to clear the backlog of unsold leveraged loans. They hope the decline in leveraged loan prices will attract new investors and stabilise sentiment.