What happens next?


The six banks who have balked at funding the 26.7 billion bucks buyout of Clear Channel Communications by Thomas H. Lee Partners and Bain Capital vow to fight on against the lawsuits filed against them in Texas and New York, insisting that they are without merit. They filed yesterday to try to move the case from the Texas state courts to federal court. The temporary restraining order against them issued by a judge in Clear Channel’s home town doesn’t specifically say they have to ante up the cash, but does require them not to interfere with closing of the deal. And since they are on the hook to provide the financing, that’s essentially the same thing. But the banks are expected to put their own lawyers to work trying to get that restraining order struck down or held at bay.

T.H. Lee’s Scott Sperling was back on CNBC yesterday insisting that his company and Bain are committed to closing the deal. He called it “completely false” that the private equity companies really want to walk, rather than go to closing. Referring to the lenders as “partners” in the deal, he also said it was the banks who came up with a structure to keep the deal on track when Clear Channel shareholders demanded a higher price for their shares and, according to him, T.H. Lee and Bain were ready to walk away from the deal. Sperling said that while T.H. Lee and Bain have a right to abandon the deal and pay a break up fee, “we don’t want to do that,” but that the banks have no such out and are legally obligated to fund the buyout.

RBR/TVBR observation: Just how are the banks blocking the deal while, according to the private equity firms and Clear Channel, pretending to negotiate credit terms? For one thing, they’ve reportedly tried to switch the financing from a six-year loan to only three. And they want a new provision that would require all proceeds from asset sales to go to debt reduction. According to T.H. Lee and Bain, the banks are also insisting on “trip wires” that could cause Clear Channel to go into default. In short, the would-be buyers say the banks are trying to force terms on them that “no responsible purchaser would ever accept.”