Home Depot last week lowered its original asking price for its contractor supplies unit HD Supply by about $1.2 billion from the original deal of $10.3 billion as financing banks reportedly threatened to back out of the acquisition, the New York Times reported.

According to sources close to the situation, JP Morgan Chase, Lehman Brothers and Merrill Lynch are concerned that the housing slump, and its impact on Home Depot’s wholesale unit, means they face the possibility of selling the debt to other investors for less than what they paid, a loss that could total hundreds of millions or even billions of dollars. The deal’s difficulties are being closely watched in the financial community as well as the rental industry, where United Rentals has until Aug. 31 to continue to seek third-party offers after agreeing last month to sell to affiliates of Cerberus Capital Management for about $4 billion in cash and $2.6 billion in assumed debt.

The sale of Home Depot’s wholesale unit, which provides tools, lumber and concrete for professional builders is the first deal-related victim of the housing slowdown and credit squeeze. The private equity firms committed to the acquisition are Bain Capital, the Carlyle Group, and Clayton, Dubilier & Rice.

A collapse in the deal could contribute to a reduction in staple financing where the same party advises the seller and lends to the buyer. A number of lawsuits are considered likely if the deal falls through.

Unlike some other sellers in private equity deals, Home Depot was willing to reduce the price of its wholesale unit because it is under pressure to divest assets. Home Depot is committed to a large stock buyback plan and hoped to use the proceeds of the sale to finance the buyback.

Home Depot is based in Atlanta. Its equipment rental program, which is not being sold, is No. 5 on the RER 100.