Texas Order Boosts Clear Channel

A Texas judge has issued a restraining order barring a consortium of banks from walking out on a $19.5 billion private equity buyout of Clear Channel Communications.

Putative buyers Bain Capital and Thomas H. Lee Partners sued the six banks that agreed to finance the buyout for breach of contract in New York state court March 26th, according to the New York Times.

In addition, the two firms and Clear Channel itself filed a tortious interference claim against the banks in Texas, where the media conglomerate is based, accusing the banks of interfering with the closing of the takeover.

In issuing the restraining order, the Texas judge found that the banks’ challenges to the deal would cause "imminent and immediate" harm to Clear Channel and the equity firms.

"We are pleased that the banks and the purchasers will now be able to move quickly to complete the loan documents and fund the merger," Clear Channel said in a statement.

Clear Channel Communications was the parent company of what is now Live Nation, which was spun off in December 2005.

The banks named in the lawsuit are Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, the Royal Bank of Scotland and Wachovia.

Previously, Clear Channel and the private equity buyers issued a statement to the Times that the banks had proposed changing a six-year financing package into a three-year bridge financing loan, one that "no responsible purchaser could ever accept."

"Defendants have made clear that they are determined, by any means possible, to destroy the merger," the three plaintiffs argued in the Texas complaint, according to the newspaper.

Citibank, speaking for all six of the named banks, issued a statement, also reported by the Times.

"The bank group presented the sponsors with credit agreements fully consistent and compliant with the commitment letter. The bank group has been and remains prepared to honor the obligations as set forth in that letter. We believe the suits are without merit and will contest them vigorously," the Times quoted.

Things have sure changed since the Bain and Lee firms agreed to take Clear Channel private back in November 2006. While the deal lumbered onward and parties struggled to reach acceptable terms for the sale, the private equity world (not to mention the rest of us) was hit with a credit crisis.

According to the Wall Street Journal, the lending commitment signed by the banks in May must have seemed bulletproof. But with the recent credit market turmoil, they stand to lose a nice chunk of the change if the deal is actually consummated.

The banks reportedly committed to lend as much as $22 billion to finance the purchase. According to the WSJ, $18 billion of that total is in unsecured loans. The ongoing crisis in the market for leveraged debt means the banks would have to mark down the value of the loans as soon as the deal closes.

Given a typical 15 percent discount, the numbers pencil out to a $2.7 billion loss before the ink is even dry on a closed deal.

In the days leading up to the filing of the latest lawsuits, the business press was abuzz with reports that the private equity firms and the banks were unlikely to reach a credit agreement.