Private-equity firms Thomas H. Lee Partners LP and Bain Capital Partners LLC have filed lawsuits against a syndicate of Wall Street banks over the deal for Clear Channel. In the suit, the plaintiffs want the lenders to fund the $19.4 billion transaction. The pair of suits, one filed in New York State Supreme Court and the other in Bexar County, Texas, claim that the banks — Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia — breached their contractual obligation to fund the deal. The New York suit alleges breach of contract and fraud. The Texas complaint, which was joined by San Antonio-based Clear Channel, claims that the banks have improperly interfered with the merger agreement. The litigation comes after a breakdown in negotiations over the financing terms on the deal.
The dispute is the latest instance of a major Wall Street deal that has landed in the courts in the wake of the credit crisis. The willingness of two of the world’s biggest private-equity firms to sue some of their biggest backers points out how the extent of the financial crisis has undone Wall Street’s traditional alliances. The New York lawsuit gets to some of the bedrock upon which deal-making rests. The banks face billions in losses if the transaction goes through because the credit-market turmoil has made it all but impossible for them to package leveraged debt and sell to investors. This type debt has typically been marked down by about 15%, meaning the banks would take a loss of nearly $3 billion. The banks committed to lend as much as $22 billion to fund the deal, $18 billion of it as senior secured loans. Clear Channel and the private-equity firms are taking a rather interesting position relating to the deal. Both say they are committed to the deal and expect it ultimately to go through. But, they also say if the deal doesn’t close, they will have an extremely large tort claim against the banks.
The complaint filed in Texas asks the court to award the buyout firms and Clear Channel more than $26 billion in damages. Bain and Thomas H. Lee Partners have also asked the New York court to grant them an order that would force the banks to immediately provide financing. If that doesn’t happen, the plaintiffs will ask for damages to cover, among other things, a $500 million breakup fee that would be due Clear Channel. The banking firms said the financing terms they offered Bain and Thomas H. Lee Partners were consistent with the original commitment letter. I suspect we will see lots of similar litigation involving companies that were all riding high before the money problems facing Wall Street surfaced.
Source: Wall Street Journal
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