Buyout firms Thomas H Lee Partners and Bain Capital are suing their own banks on the $26 billion (€16.5 billion) media take-private of Clear Channel in an effort to force them to provide funding for the deal.
The private equity firms have filed lawsuits against Citigroup, Morgan Stanley, Credit Suisse, RBS, Wachovia, and Deutsche Bank in New York's state supreme court and in Texas state court; Clear Channel has joined the sponsors as a plaintiff in the Texas suit. The Texas complaint has already led to a temporary restraining order from a judge that effectively demands the banks fund the deal.
The sponsors argue they should receive damages substantially exceeding the deal’s $26 billion price if funding is not provided as agreed.
The banks are fabricating false reasons to refuse to proceed.
On the strength of the suit, Texas judge John Gabriel ordered that the banks must not “interfere with or thwart consummation of the merger agreement” by refusing to fund the transaction or insisting on different terms to their commitments.
He found “irreparable harm” would result to Clear Channel if the banks were not immediately restrained from “tortiously interfering” with the deal.
Clear Channel said: “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.”
The suits are without merit and we will contest them vigourously.
A Citi spokeswoman acting on behalf of the bank group declined to comment on the restraining order, but said in an e-mailed statement that it had provided the sponsors “with credit agreements fully consistent and compliant with the commitment letter”.
The banks maintain that they have been and continue to be prepared to honour their obligations as outlined in the commitment letter. “We believe the suits are without merit and will contest them vigourously,” the group said.
The suits accuse the banks of refusing to complete necessary documents in an effort to “run out the clock”. Clear Channel said: “The banks are fabricating false reasons to refuse to proceed with the transaction.” It said the banks knew that if the transaction does not close by 12 June it will become invalid.
Bain Capital and Thomas H Lee said in a joint statement: “We have invested 18 months of time and effort to own Clear Channel. We want to do this deal. We are ready to close, have funded the equity portion of the purchase consideration, maintain our enthusiasm for the investment, and are fully prepared to fulfill our contractual obligations to complete the deal.”
The deal is one of a number which has remained hung since the crisis in the worldwide credit markets began in August. Some deals, such as Providence Equity Partners' $1 billion purchase of 52 TV stations from Clear Channel, have resulted in settled lawsuits and renegotiated terms. Other deals, such as the JC Flowers consortium’s take-private of US student loan provider Sallie Mae, have been abandoned after banks and financial sponsors could not agree on financing.
According to rating agency Standard and Poor’s there are now 114 companies in worldwide markets with weakest link credits (those closest to default) globally of which 93 are US-based. Banks are reluctant to fund agreed mega deals from before the credit crisis due to the lack of liquidity in the credit markets making them impossible to syndicate.
Despite this the worldwide leveraged loan pipeline on unsyndicated deals has come down to $131 billion this month from $164 billion, according to UK newspaper Financial Times citing S&P.