There are strange goings on in the markets these days. The latest catch 22 is the rally in junk bonds. Bloomberg reports that "The lowest rated companies that may not be able to afford avoiding bankruptcy and exchanging or buying back debt at the lowest prices on record." That is pushing the prices of junk bonds up in the biggest rally ever. The flip side is that this practice is the higher prices are crowding out some of the neediest companies

Here are some examples:

• The Blackstone Group LP (NYSE: BX) owns Freescale Semiconductor Inc. In March, Blackstone wiped away $1.9 billion of Freescale's debt by offering investors 32 cents on the dollar in loans. Since then the securities have tripled to 54.1 cents on the dollar. Now, the chip maker still has $7.5 billion of debt and would need to do it at much higher prices.

TheStreet.com's Jim Cramer says until we have some failures, he doesn't share the pervasive gloomy outlook.

Where are all the bank failures? When is a Freescale (NYSE: FSL) (Cramer's Take) or an Outback going to go under? How can Cerberus put on such a happy face? Why don't some newspaper or radio station companies fail?

As I read the article on Goldman Sachs (NYSE: GS) (Cramer's Take) today, I am struck by its sheer negativity. The Journal article makes it sound like Goldman is sitting on a pile of huge losses, paper that's never going to sell.

But I have to remind these naysayers that this is corporate debt, and corporate debt -- unlike so much of the housing debt of 2005-2007 -- is actually based on something, some standards, that actually might get it through.

Senator John McCain likes to say that the federal government is like a drunken sailor. He then apologizes to sailors.

We've also seen some drunken behavior in private equity. Then again, with a stable economy, cheap debt and tons of equity capital, why not do lots of deals – even if some are dicey?

In today's Wall Street Journal [subscription only], it now looks like some of the deals are not looking so good.

Keep in mind that buyout transactions involve lots of debt. So if things come undone, the consequences can be severe.

Some of the problematic deals include Linens 'n Things, Star Tribune, and Freescale.

Basically, these are companies in volatile industries. For example, Linens 'n Things must not only deal with tough competition but an ailing real estate sector; Freescale is in the rough-and-tumble semiconductor space and its biggest customer, Motorola (NYSE: MOT), is lagging; and the Star Tribune is suffering from the diversion of advertising money to dot-com properties.

True, this is a small sample. But we are still in the early stages of the buyout surge, so it's tough to gauge what may happen. Although, if the economy falters and interest rates continue to rise, we'll definitely see more deals go sideways.

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

Over the past few years, private equity firms have shown an appetite for mega deals -- and even riskier sectors, such as semiconductors.

A prime example is the $17.6 billion buyout of Freescale. The buyers included Blackstone Group, Carlyle, Permira Advisers, and the Texas Pacific Group.

Well, according to a piece in the Wall Street Journal [a paid service], the deal may show the inherent risks of the new approaches to private equity. That is, Freescale has posted weak financials lately. A big problem as been the slowdown from its major customer, Motorola, Inc. (NYSE: MOT).

Of course, the private equity sponsors understood the volatile nature of the semiconductor industry. They also realized that the debt markets were carefree with lending money. As a result, there is about $1.5 billion in Freescale debt that is variable. This means that the company can defer payments (kind of nice, huh?).

This is fine so long as the company eventually comes back. But, history is not so kind to semiconductor companies and there is certainly a good amount of competition. Another nice feature: Freescale can call on $750 million in new loans at any moment.

No doubt, it's good to be in the private equity business. Although, as for those holding debt in these deals, it does look fairly risky.

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

Private equity firms are certainly hungry for semiconductor firms, such as the $17.6 billion buyout of Freescale. And recently there was the proposed $5.5 billion deal for Advanced Semiconductor Engineering.

An analyst at Prudential, Mark Lipacis, has put together a buyout list. Basically, he focuses on what private equity firms like -- lots of cash and cash flow.

His picks? Here's a look:

Altera (ALTR)
Analog Devices (ADI)
Linear Technology (LLTC)
Maxim Integrated Products (MXIM)
Texas Instruments (TXN)

Remember, there's a reason that semiconductor companies have lots of cash: the industry is cyclical. If the economy goes south, these companies can wait it out.

And it does look like the economy is slowing down. So if these semiconductor companies take on huge amounts of debt, might they be vulnerable?

Perhaps. But so far, it seems like private equity firms are far from concerned.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

HCA, which is the biggest hospital company in the US, is going through the leverage buyout process. This means borrowing huge amounts of money – such as from banks and bond investors.

Well, it looks like there is little trouble raising the capital. Today, HCA was able to issue $5.7 billion in high-yield bonds.

Actually, keep in mind that "high-yield" has another name – ie, "junk bonds." These are bonds that have a relatively higher risk of default. In particular, the bonds have terms of 8 to 10 years. And, what do investors get? The yields range from 9.125% to 9.25%.

That's certainly better than what investors can get from the Treasury market.

Yet, there is definitely some risk. If HCA has trouble, so will the bonds. But, hey, that's for another day.

Something else: with the ease of the HCA financing shows there is lots of liquidity for buyout bonds. Actually, the next mega deal to get financing is Freescale, which will involve $9.4 billion in bonds.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Financial Statemet. He also has a blog at www.taulli.com.

MOST NOTEWORTHY: Broadcom (BRCM) and News Corp (NWS, NWS.A) top today's extensive list of downgrades.

• Broadcom Corp (NASDAQ: BRCM) was downgraded by JMP Securities to Market Underperform from Market Perform, citing valuation and the chance of cautious guidance for the December quarter.
• Soleil Securities downgraded News Corp Ltd. (NYSE: NWS, NWS.A) to Sell from Hold citing the company's deteriorating asset efficiency following the change in senior management compensation structure.

OTHER DOWNGRADES:

• Lower than expected September traffic and unit revenue estimates forced Calyon Securities to downgrade US Airways Group Inc. (NYSE: LCC) to Add from Buy.
• The negative pre-announcement from Legg Mason Inc. (NYSE: LM) triggered downgrades from Freidman Billings Ramsey, to Underperform from Market Perform, and Merrill Lynch, to Sell from Buy.
• And finally, Freescale Semiconductor Inc (NYSE: FSL, FSL.B) was downgraded to Hold from Buy at Citigroup after the consortium led by the BlackStone Group made the company an offer to take them private.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

After reaching $100 a share in 2000, it's been mostly torture for shareholders of 3Com as it spiraled lower and lower. But today, the stock got some juice, increasing 12.58% to $5.01.

A report from Bloomberg indicates that the company is a possible takeover target. The theory is that one or more private equity firms will make a bid of $7 per share.

Apparently, the big interest is in 3Com's joint venture with Huawei Technologies Co. This has been a key growth driver.

But, with the recent big buyout deals – such as the takeover of Freescale – there are now a lot of rumors swirling. For the most part, rumors are just that. So, as always: investors beware.

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.

Freescale Semiconductor is selling out for a cool $17.6 billion. And that makes it the biggest tech buyout in history (#2 on the list is the SunGard deal, which sold-out for $11.3 billion). Freescale, which was a division of Motorola, has mega clients like Sony, Whirlpool, Ford and GM.

The investors in the buyout include a group of top-tier private equity firms: Blackstone Group, Carlyle Group, Permira Funds and Texas Pacific Group.

However, there's a hitch. Freescale has the option -- for the next 50 days -- to evaluate other offers (so, if you have $17.6+ billion to spare, give 'em a call). But there is a consequence to it -- a $300 million break-up fee.

Yes, in the rarefied world of private equity, everything is on a grand scale.

What's more, with its new financial backers, Freescale is likely to buy companies as well. In fact, with tech making a comeback, it looks like there may be many more deals for semiconductor companies.

Which ones?

Well, according to Joe Osha, an analyst with Merrill Lynch, the following look like buyout bait:

Advanced Analogic Tech (AATI)
Analog Devices (ADI)
IDT (IDTI)
Intersil (ISIL)
Linear Technology (LLTC)
LSI Logic (LSI)
Microchip (MCHP)
Netlogic (NETL)
Silicon Labs (SLAB)
Xilinx (XLNX)

Tom Taulli is the author of various books, including the Complete M&A Handbook and operates InvestorOffering.com.