Banks Assess Clear Channel Liability

The messy attempt to buy out Clear Channel Communications in 2006 has turned into a high-stakes court battle, with several major banks taking a stand against accusations that they owe capital investment firms billions of dollars.

Buyout firms Thomas H. Lee Partners and Bain Capital LLC initially attempted to buy Clear Channel in November 2006. They would acquire the media giant – also former parent of Clear Channel Entertainment – for $19.4 billion and take on $7.8 billion of its debt.

The banks – Citigroup, Morgan Stanley, Credit Suisse Group, Royal Bank of Scotland Group, Deutsche Bank AG and Wachovia Corp. – agreed to provide more than $22 billion in financing. The banks revised their commitment letter to fund the deal in May 2007. Since then, the credit-market crunch has made it more difficult for the banks to reduce their risks by selling the debt in the secondary market.

The buyout firms sued the banks for $26 billion in a lawsuit in Texas. Now the banks have turned around and filed a counterclaim that their liability in the matter should be $600 million or less.

"The commitment letter and the merger agreement contain certain provisions that are intended to limit the banks’ potential liability to plaintiffs and counterclaim defendants," the banks said in court filings. "A dispute plainly exists as to the legal rights and obligations of the banks with respect to the counterclaim defendants."

As expected, the banks also asked that Clear Channel, a party in the Texas case, be added as a party to the New York lawsuit.

"This is just another desperate attempt by the banks to avoid being held accountable for the enormity of the harm caused by their unlawful interference with our merger agreement," Clear Channel said in a statement. "We are confident these tactics won’t work."