Another private equity deal that has a lot of people paying attention is moving ahead. Blackstone’s $26 billion takeover of Hilton Hotels has been closely watched as another indicator of the strength of the buyout market and the willingness of banks and investors to finance the deals. Yesterday Hilton announced that it was kicking off a $1.8 billion tender offer for its existing notes, which will be paid off with new debt financing the acquisition.

The Hilton deal was the last major buyout announced before the private equity LBO market went into its currently catatonic state. Blackstone agreed to a hefty premium for Hilton—the price tag was a 40% mark-up from where the stock was trading before the deal was announced. The total price tag was around $26 billion—$20 billion cash and $6 billion of assumed debt.

In the current market, the deal is considered far riskier than at the time it was signed-up. The risk of a recession poses a real threat to hotel chains, and investors have been balking at the high levels of leverage involved in many of the largest takeovers. Blackstone plans to raise as much as $21 billion to finance the deal. Bear Stearns, Bank of America, Deutsche Bank, Morgan Stanley and Goldman Sachs all committed to finance the deal when it was closed.

The tender offer is just a first step—a small one—but it will likely be welcomed by thsoe who are concerned that all or part of the nearly $400 billion of buyouts waiting to close later this year might be held up by conditions in the credit market.

Press Release [BusinessWire.com]