Home Depot, the world's biggest home-improvement retailer, has agreed to sell its construction-supply business to a private equity consortium at an 18 per cent discount to the original $10.3 billion (£5 billion) price it sought two months ago. Home Depot has also agreed to finance $1 billion of the purchase itself.

The business will be sold to private equity groups Bain Capital, Carlyle Group and Clayton Dubilier & Rice for $8.5 billion, Bloomberg reports today.

The sale had been threatened by a slump in investor demand for private-equity debt amid the worst US housing market in 16 years.

Banks, which usually finance transactions and then offload the debt into the capital markets, are demanding lower purchase prices as they grow increasingly concerned that they can no longer lay off the risk.

Bloomberg reported that its sources said Merrill Lynch, JP Morgan Chase and Lehman Brothers - the banks funding the Home Depot deal - had threatened to walk away from the transaction.

Home Depot said on August 9 that the price for the business may be reduced from the amount agreed in June. It then extended the date for completing the deal to August 23.

Walter Todd, a principal at Greenwood Capital Associates in Greenwood, South Carolina which manages $6 billion, told Bloomberg: "This is really going to change the balance of power. Private equity had the upper hand for a while, and banks were falling over each other to get the next deal. Now the shoe is on the other foot.''

Home Depot, the second-largest US retailer, is selling HD Supply - which provides tools and timber to builders and accounts for about 13 per cent of Home Depot's sales - to focus on its home-improvement stores.

Home Depot planned to use the sale proceeds to help fund a $22.5 billion stock buyback, which is expected to go ahead despite the price cut.

The buyback is part of the plan of new chief executive Frank Blake to refocus the company on its retail stores.

His predecessor, Robert Nardelli, who was given a $210 million severance package, was criticised by investors for expanding the supply unit at the expense of store performance.

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