Some of the world's biggest debt investors are demanding better terms to lend money for corporate takeovers after $42 billion of failed deals left them nursing losses.

The money managers are pressing Wall Street banks to shield them from losses that occur when a failed merger prompts a company to buy back debt at a price below market value, according to people with knowledge of the matter. The discussions heated up after the failure last month of Lam Research Corp.'s $10.6 billion deal to purchase KLA-Tencor Corp., which cost bondholders $86 million, the people said, asking not to be identified as the discussions are private.

Investors who have enabled $1.2 trillion of mergers this year are nervously staring down a growing pipeline of debt that needs to be sold for deals that may never see the light of day. Among them are AT&T Inc.'s $85 billion merger with Time Warner Inc. and Bayer AG's acquisition of Monsanto Co. Those companies have already lined up a combined $97 billion in bridge loans from banks, which typically offload the debt to investors in the bond market before a transaction is completed.