Anyone who hasn't been cozily sleeping under a rock for the last month is well aware of the recent string of hedge fund blowups and poor performance in the CDO (Collateral Debt Obligation) space attributable to the implosion of the subprime mortgage space. While it is certainly the fault of the fund managers for becoming involved in such a speculative space due to mouthwatering potential returns, there's also an understated culprit: the ratings agencies.

Ratings agencies essentially determine the riskiness of a given fixed income instrument and, as the name implies, give the security a rating. For example, the theory goes, a C-rated bond is more risky than an A-rated bond. But as Bloomberg has recently reported, these agencies are losing credibility, especially in the credit derivative space.

For example, the article references CPDO funds. Basically these are funds that sell credit default swaps. Credit default swaps are insurance policies on a given fixed income security defaulting. While the ratings agencies have been rating these funds very well (meaning they consider them to be conservative/safe), these funds have dropped 19%-33%. For a product rated AAA (lowest risk) this type of volatility is ridiculous.

Those cited in Bloomberg aren't the only ones who are growing skeptical of the ratings agencies. In fact, when the Chairman of Bear Stearns (NYSE: BSC) was forced to explain two of the company-owned hedge funds 'blowing up' he partially attributed it to poor performance from highly-rated securities.

Home Depot (NYSE: HD) hoped it had sold its HD Supply business to private equity interests for $10.325 billion. Problems in the credit market trashed the deal.

HD announced that it is now in "discussions with affiliates of Bain Capital Partners, The Carlyle Group and Clayton, Dubilier & Rice for the purpose of restructuring the previously announced agreement for the sale of HD Supply."

That means that the buyers want a better price because they cannot raise the cake to make the purchase. Obviously, no sane bank or investment firm wants to make a high-risk loan for a high-leverage deal. Not with most of them holding the bags on other deals that they could not syndicate to institutional investors.

Market conditions are also causing the retailer to drop the price at which it will buy its shares in its previously announced "Dutch auction" tender offer to purchase up to 250 million shares of its common stock at a price between $39 and $44. Market conditions have caused the company to drop the price range to between $37 and $42 per share.

If the market needed a sign that the credit markets are on the critical list, this is it. One of America's largest companies lowering the price of a buyback and three premiere private equity firms unable to raise capital for a previously announced deal. Imagine how bad things are getting for less marquee deals.

Home Depot shares are down almost 6% in the pre-market.

Douglas A. McIntyre is a partner at 24/7 Wall St.