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In late 2005, Apollo Management Group agreed to pay $1.3 billion for Linens 'n Things, taking the company private. It proved to be horrible timing, as the housing market began its dramatic decline.

And the credit markets eventually crumbled, making the investment unworkable. In fact, the company had to file for bankruptcy in May.

Linens 'n Things tried to sell itself. Unfortunately, there were no bidders willing to take on the risks. So, this week the company will undergo a liquidation process.

No doubt, this is a big fall. Last year, Linens 'n Things posted revenues of $2.8 billion and had 589 stores across 47 states. There will also be a real impact on the employee base – which was 17,500 last year – as well as the 1,000 suppliers.

At the same time, expect some bargain-basement prices at local Linens 'n Things stores over the next few weeks.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market He is also the founder of BizEquity, a valuation website

They say private equity is the smartest of smart money, able to generate massive profits out of thin air. Well, the folks at Apollo Management probably aren't feeling too smart today, as their $1.3 billion investment in Linens 'n Things has taken a significant turn for the worse.

Linens 'n Things has now confirmed the growing speculation that it would declare bankruptcy. As Zac Bissonnette reported in April, the company lost $242 million in 2007, after the company had gone private in February of 2006. In the last few months, it was said to be having trouble with its suppliers, which rightly feared providing it with credit and merchandise.

The odd thing is that many private equity funds saw the housing and credit crunch coming. It would stand to reason that a billion dollar chain that feeds on the housing market may not be the best investment towards the end of a great speculative housing boom, but I guess the people at Apollo thought they could work their magic whatever the market conditions.

The good news is that Linen Holdings has secured $700 million in financing from GE Capital. This should enable the company to continue operating as it restructures, although it will close 120 stores. But at least the majority of its 17,000 employees still have hope that they won't lose their jobs, at least not right away.

Without even looking at the numbers or knowing anything about the deal, most people could probably tell you that Apollo Group's acquisition of Realogy, parent company of Century 21 and Coldwell Banker, at the height of the real estate boom is probably not doing too well.

And that's just the beginning of the private equity giant's woes. There's also the Linens n' Things deal on the brink of bankruptcy and Claire's Stores. The New York Times takes a look at the company and its top man, Leon Black, who continues to invest aggressively in spite of the troubled market. Apollo came close to buying billions in debt from Citigroup last week.

The Times piece has an interesting quote from Black: "You can get equity-type returns from debt instruments that may be a better play than pure equity right now, where you can't get leverage."

Apparently the lack of liquidity in debt has made that market a lucrative stomping ground for vultures. If Black and other are content to look for value buying back debt they issued a few years ago at 40 cents on the dollar, we could see the private equity slowdown continue for awhile -- that would be bad news for stock market investors who look to buyout shops to take companies private at substantial premiums.

Sometimes brilliant people armed with spreadsheets screw up badly. Sometimes, as in the case of Linens n' Things, they screw up really badly.

In February of 2006, Apollo Management agreed to take Linens n' Things private for $1.3 billion. Now, less than two years later, the company is poised to file for bankruptcy, according (subscription required) to the Wall Street Journal. The company employs 17,000 people, with 590 stores in 46 states. The company lost $242 million in 2007.

The Journal reports that "Linens also is working to avoid or delay filing for bankruptcy protection by meeting Monday with its lenders and largest vendors to work out an agreement, but a deal is unlikely."

Linens n' Things is a victim of two of the economic woes generating the most media attention: the housing downturn and the credit crunch. In addition, lower-cost suppliers of similar products like Wal-Mart (NYSE: WMT) are taking market-share. People who are having trouble paying their mortgages tend not to obsess over thread count.

On another note, housewares retailer Pier 1 Imports (NASDAQ: PIR) appears to be making strong progress on its turnaround, with its first comparable sales gain in 17 quarters and a return to profitability -- its first quarter in the black in 12 quarters.

But its huge debt load makes it tough for Linens n' Things to weather economic storms.