The corner of the private equity sector focused on distressed investment opportunities has a considerable amount of cash on the sidelines. Distressed debt funds lead the private equity industry in terms of dry powder, followed by special situation and turnaround funds, according to alternative investment research firm Preqin.

Though global dry powder has fallen from its worldwide high of $59.9 billion in December 2007, its January 2010 level of $42.5 billion is still far above the $18.7 billion reached in December 2004. This does represent a decline of 29% from the 2007 peak, but the dry powder levels remain robust.

First Data, the first of the large PE deals seeking financing following the meltdown of the credit markets, placed $9.4 billion in loans yesterday. Supposedly, the amount of debt sold was nearly double the $5 billion banks targeted.

Also, Oaktree Capital Management, BlackRock and Eaton Vance are forming funds to buy up some of this debt. The 400 bps banks have had to add on to yields are beginning to pique investor's interest.

What should also begin to be seen is that the amount of debt that needs to be placed should start coming down. News reports cite as much as $330 to $370 billion in loans need to be placed. However, this number seemed to grow as the credit-market meltdown fears hit the markets. Prior to the panic hitting a crescendo, $200 billion in leveraged loans and some $75 to $100 billion of high yield bonds were the target that needed to be sold.

However, take away First Data and TXU Corporation (NYSE: TXU), the two large deals being financed, and add to that Harman International Industries Incorporated (NYSE: HAR) and Sallie Mae that look like they might not get financed, and this number drops rather quickly. Plus add all the smaller deals that are not household names that will not get done and next thing you know this problem is being resolved.

Once again, free markets are correcting the problem that they created.

Just four years ago, Formica was mired in bankruptcy. Interestingly enough, this was one of the attractions for private equity firms Cerberus Capital Management LP and Oaktree Capital Management LLC, which were able to get a strong brand for a bargain price of $175 million.

Now, they are selling out to Fletcher Building, an Australian building materials manufacturer, for $700 million. To get the deal done, Fletcher will tap the frothy debt markets as well as do an equity offering.

While private equity firms get criticized a lot, the Formica deal is certainly a case study for showing how they can be extremely helpful in rejuvenating companies. There was quite a bit of restructuring and a focus on low-cost manufacturing areas, such as China.

The deal comes to about 7 times EBITDA, which is a pretty good valuation for Cerberus and Oaktree.

Fletcher trades in the Australian equity markets and the deal was announced after the close of trading.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.