Remember the private equity boom that lasted a few months in 2006.  Realogy, with brands like Coldwell Banker, Century 21, Sotheby’s, Better Homes and Gardens and ERA were looked quite charming to Apollo Management – now their financing has hit the fan.  They are in the process of getting the bond holders who financed the deal to forgive a significant amount of the debt in turn for preferred payouts if the company fails.  This can also be referred to as a Cram Down – as in, if you want to get paid, we will be cramming this new valuation down your throat.  The bad news for investors means great news for Realogy – a company who stands to come out of this stronger than ever before.

It was as badly timed a takeover as there was during the private equity boom.

At the end of 2006, Apollo Management, the private equity firm headed by Leon Black, agreed to buy Realogy, a conglomerate with a number of franchised real estate businesses, among them Century 21 and Coldwell Banker, for $7 billion in cash. Now, The New York Times’s Floyd Norris writes, a struggle is emerging over how the unfortunate lenders should be treated. Realogy, under the direction of Apollo, is using a classic divide-and-conquer strategy. Bondholders are screaming that the tactics are illegal.

The strategy is simple: Just tell one group of bondholders that they can move up in the capital structure (and thus be more likely to be paid if the company goes broke). But first, they have to agree to forget about collecting most of the money they are owed. They are being asked to trade in old bonds for new loans with much smaller face values.

Overindebted consumers can only look on with envy, wishing they could pull off something similar, perhaps by telling one credit card company that they will pay another card company first unless the first company agrees to forgive most of what it is owed.

No owner of Realogy bonds has to make the exchange, of course. But if a bondholder turns it down, and others do make the exchange, that bondholder may find that he is much farther back in line, with even less probability of being paid anything.

Realogy disclosed this week that a lawyer claiming to represent owners of a majority of one class of bonds had threatened to sue, arguing the offering violated bond indentures. The company did not identify the lawyer, but The Times reports that one person involved in the case said Carl C. Icahn, the financier, owned the bonds. Mr. Icahn declined to comment.