Private equity's track record making private investments in public entities has been checkered at best. Investments in PIPEs typically aim to help companies in dire need of cash. They became popular starting a decade or so ago, with mixed results.

In 1999, Boston's Thomas H. Lee Partners LP invested $500 million in insurer Conseco Inc., which subsequently ran aground from a subsidiary's defaulted mortgages. Buyout pioneer Ted Forstmann led his buyout shop, Forstmann Little & Co., into disastrous PIPE investments in XO Communications Inc. and McLeodUSA Inc., becoming a symbol of the telecommunications boom's excesses, which ultimately led to his firm's fall from grace. Another casualty was Hicks Muse Tate & Furst Inc., now HM Capital Partners LLC, which plowed $1.6 billion into telecoms.

Not to say there weren't success stories. Many buyout shops, including Bain Capital LLC, Apollo Management LP, Madison Dearborn Partners LLC, TPG Capital and Warburg Pincus -- and lest we forget the smartest money of all, Warren Buffett -- can all lay claim to successful PIPEs at some point. Some of the most successful ones during the tech bubble were fairly small investments of under $500 million. JLL Partners Inc.'s (then Joseph Littlejohn & Levy) $150 million investment in prescription drug company Advance PCS Inc. was among the blockbuster wins, yielding net proceeds of $1 billion, or a 591.7% internal rate of return.

Recent events haven't changed the mixed reviews. Absent leveraged financing, the staple of leveraged buyouts, some PE shops have taken to PIPEs as an alternative way of deploying capital. This year to date featured an astonishing $180 billion worth of PIPEs, according to PlacementTracker, a unit of Sagient Research Systems Inc., which has followed PIPEs since the mid-'90s. Of that, sponsors invested about $19.1 billion, or 11%, compared with just $3.4 billion of last year's $84 billion total.

Understandably, interest has flagged of late. TPG Capital's $1.35 billion loss from Washington Mutual Inc., the failed savings and loan that J.P. Morgan Chase & Co. scooped up in September, showed just how treacherous the markets can be, though TPG said it had not foreseen the magnitude of the financial crisis nor its profound global impact.

Corsair Capital LLC fared better, breaking even on its $785 million investment in National City Corp., its first foray in a U.S. commercial bank. Not so for other private investors in the $7 billion capital raising by Cleveland's Nat City, which Pittsburgh's PNC Financial Services Group Inc. took over in October.

Likewise, other bailout PIPEs by private equity firms are under water, though the jury remains out. Warburg Pincus' $800 million in bond insurer MBIA Inc. is now worth about 50% less on paper. Others, including Wilbur Ross' $250 million outlay in bond insurer Assured Guaranty Ltd. and Thomas H. Lee Partners and Goldman, Sachs & Co.'s $1.2 billion commitment in equity and debt to MoneyGram International Inc., have taken even bigger hits.

Still, the love-hate relationship with PIPEs continues. Braving the markets, Los Angeles buyout firm Leonard Green & Partners LP is injecting $425 million for a 17% equity interest in Whole Foods Market Inc. The Austin, Texas, natural foods store operator has faced mounting difficulties. Its stock has lost about 75% of its value this year amid the specter of a deepening recession and an apparent decline in Americans' appetite for upscale, pricey food. An aggressive expansion plan, including the $700 million merger with Wild Oats Markets Inc. agreed upon last year, along with proposals to open an additional 66 stores in the next four years, hasn't helped.

Leonard Green declined comment.

Whole Foods posted net income of $1.5 million, or 1 cent a share, in the 12 weeks ended Sept. 28. That compares with a net profit of $33.9 million, or 24 cents a share, in the same period last year. The earnings decline was attributed to negative comparable store sales, reduced margins due to customers trading down and Whole Foods' inability to pass along cost increases. For the fiscal year ended Sept. 28, the company posted $114.5 million in net income on $7.95 billion in sales.

Leonard Green will get newly issued preferred convertibles into common at $14.50 a share. The conversion price on the preferred is 41% above Whole Foods' $10.31 closing price on Nov. 5 at the time of the announcement.

Its convertibles will pay an 8% dividend, in cash or in kind at Whole Foods' option. And the dividend will drop to 6% after three years if Whole Foods stock closes at or above $17.75 a share for 20 consecutive trading days.

As with recent PIPEs, it's too early to say how Leonard Green's bet will perform. But the news was met with a tepid response, with the stock gaining only 17 cents on the announcement. Shares were trading at $9.20 as of Nov. 12.

Whole Foods chairman and CEO John Mackey gained points for boosting liquidity. "The cash infusion is good," says Edward Henderson, a senior analyst at Moody's Investors Service. Whole Foods also cut some expansion plans and terminated leases. Before the capital infusion, Whole Foods' stock had lost about half its value in October on analysts' concerns over the company's lack of liquidity.

But Moody's qualified its view, downgrading Whole Foods' probability of default and senior secured bank loan ratings to Ba3, from Ba2. Moody's also warned about a further downgrade if earnings continue to decline and leverage rises incrementally.

"We're reviewing it because it isn't clear if the liquidity will be sufficient to address the company's needs," Henderson said.

While Whole Foods' $350 million in debt is relatively small, Moody's said the 6.5 times debt-to-Ebitda multiple is high and could rise, as the weakening economy continues to pressure earnings.

Credit Suisse Group analyst Edward Kelly said Whole Foods alleviated liquidity concerns, but the investment, coming at a costly 5.3 times Ebitda ratio, provided further evidence that the company has "serious cyclical and structural issues." The combination of aggressive organic growth at diminishing returns, the highly questionable acquisition of Wild Oats, severe consumer weakness, and poor liquidity management has finally forced the company to raise additional capital, Kelley's research concludes. "The stock's fundamental outlook remains poor," the report said.

All this may not bode well for Leonard Green. But the firm boasts a successful history in retail, profiting from bets on Kash n' Karry Food Stores Inc., now Sweetbay Supermarket, Jack in the Box Inc., and more recently in flower seller FTD Group Inc., which returned 2.2 times its cost. The firm also doubled its money in drug retailer Rite Aid Corp., its only other PIPE investment in its nearly 20-year history.

If nothing else, this latest PIPE signals that companies previously reluctant to sell stock in the hopes that financing markets will open up are now truly feeling the pinch.

Whole Foods' example shows that there are those that just can't afford to wait out the storm.

-- David Carey contributed to this article.