NEW YORK (Dow Jones/AP) _ A New York judge on Friday agreed to keep Clear Channel Communications Inc. out of a New York lawsuit concerning its stalled $19.5 billion buyout by a group of private-equity firms.
That decision appears to keep alive a second deal-related lawsuit in Texas, which a group of banks had tried to get dismissed. The banks are being sued for allegedly stalling on providing financing for the deal. Clear Channel is based in San Antonio.
A statement that Clear Channel released after the ruling said, "We are grateful that Justice Freedman sent our case back to Texas where it belongs. The banks can have their lawyers churn out as many motions and briefs as they want, but ultimately this case boils down to a simple question of right and wrong, and they will face a jury in Texas to decide that question."
Representatives of the private-equity firms, Bain Capital LLC and Thomas H. Lee Partners, had no comment, and bank representatives offered no immediate comment.
Justice Helen E. Freedman also sided with the banks in ordering the private-equity firms to provide more information so she can decide whether to limit the banks' potential damages in the lawsuit.
Freedman is expected to rule soon on the banks' separate request to have the New York lawsuit dismissed.
The dispute centers on the financing for the buyout of Clear Channel, a radio and billboard-advertising company. Bain Capital and Lee Partners have accused the bank group of illegally balking on commitments to provide about $22 billion in financing toward the sale.
The banks have asked the New York state court to dismiss the breach-of-contract lawsuit against them. The banks are Citigroup Inc., Deutsche Bank AG, Morgan Stanley (MS), Royal Bank of Scotland Group PLC, Credit Suisse Group and Wachovia Corp.
In a hearing before Freedman this week, Guy Struve, an attorney for the bank group, argued the banks were negotiating in good faith over the final terms for the lending agreements when the buyout firms surprised them with the litigation. The banks also argued the buyout firms' legal claim of specific performance — which would force the banks to fund the deal — can't be enforced by the court in this case.
Mark Hansen, an attorney for the buyout firms, sought to show the banks, worried about billions of dollars of losses on the deal, wanted the transaction to fall apart, and proposed financing terms they knew would be deal-breakers for the buyout firms. The allegedly onerous terms included not allowing Clear Channel to repay existing debt with its own cash flow or the bank group's loans, the buyout firms argued.
The hearing came days after the buyout firms rejected the banks' offer to have an arbitrator decide the dispute. The banks' offer of arbitration was seen by some observers as an olive branch offered to reach an amicable resolution, while others saw the offer as a bid to curry favor with the judge, or as a sign the banks were nervous about their likelihood of winning their case in court.
As weak credit markets curtail debt-reliant deals, the Clear Channel deal is being closely watched as a possible indicator of how other deals may fare. The outcome may have implications both for current deals, such as the pending buyout of BCE Inc. and future transactions.
Clear Channel's shares were at $30, up 30 cents, in after-hours trading.
Copyright 2008 The Associated Press.