The months-long clearance of debt used to finance buyouts and acquisitions is culminating in a blowout sale that may indicate a bottom to this troubled market.

Citigroup is near a deal to sell $12 billion in loans to a group of private equity firms, according to a number of reports today.

Apollo Management, known for profiting from distressed securities, is buying roughly half of the loans, while TPG, formerly Texas Pacific Group, and Blackstone Group are buying the rest. The three firms are paying from the mid-80 cents to 90 cents on the dollar for the loans, according to the reports.

It's an extraordinarily large sale of corporate loans, but as Megan Barnett of Portfolio.com reported in February, a number of large corporate-loan portfolios have been coming on the market, dumped by investors fearful of price drops that would force their liquidation.  

A successful sale of Citi could revive a market for buyout debt that has been moribund since the credit markets seized up last summer, halting a wave of dealmaking.  Simon Nixon on Breakingviews.com agrees that a successful sale could steady the  market. "But even a $12 billion sale would make little dent in the $200 billion backlog of leveraged buyout loans currently stuck on bank balance sheets," he notes.

The three private equity firms are essentially doubling down on their own deals, as Michael J. de la Merced and Eric Dash of the New York Times point out. Some of the debt being sold helped finance the buyouts of Harrah's, Alltel, and TXU, they say. The advantage to the firms, of course, is that they understand the underlying business better than other investors.

The Financial Times' Alphaville blog wonders where the private equity firms' financing to buy the debt is coming from, suggesting that perhaps Citi will take a role in a joint venture with the three firms.

That would mean that Citi isn't quite shedding all of the $12 billion right away.

Still, any deal would go a long way toward reducing Citi's deal-debt exposure, which, at the end of last year, stood at $43 billion.

Under Vikram Pandit, its new chief executive, the bank has been steadily  writing down its debt portfolio and shrinking its balance sheet. Citgroup may announce a write-down of as much $16.8 billion, primarily on its collateralized debt obligation, when it reports first-quarter results on April 18, estimates the research firm CreditSight.