Clear Channel Buyers Sue to Force Funding

Updated from 5:42 p.m. EST

The fight to take Clear Channel (CCU Quote) private has gotten uglier.

Private-equity firms Bain Capital and Thomas H. Lee Partners on Wednesday filed breach-of-contract suits against the banks involved in the financing for the $19 billion privatization of the media giant. The firms claim the banks have made changes to their initial contract that tighten credit restrictions and could eventually cause Clear Channel to go into default.

Clear Channel has also jumped into the fray, joining the firms as a plaintiff in one of the suits.

"It seems clear that lenders' remorse set in when credit markets worsened," Bain and Thomas H. Lee said in a statement Wednesday. "Now they are trying to walk away from their commitment letter which clearly states that they bear all the risk that conditions in the debt markets might change."

On Tuesday, the Wall Street Journal called the deal "near collapse" because of a dispute with financiers over the credit pact. Clear Channel lost $5.64, or 17.3%, to close at $26.92 during Wednesday's session, but rose more than 3% in after-hours trading on word of the lawsuit.

Among those banks that are at odds over the credit agreement are Citigroup (C Quote), Morgan Stanley (MS Quote), Wachovia (WB Quote), Credit Suisse (CS Quote), Deutsche Bank (DB Quote) and the Royal Bank of Scotland (RBS Quote).

The suits were filed in the Supreme Court of the State of New York and the state court of Texas, where Clear Channel is based.

The lawsuit becomes the latest chapter in the dramatic saga of Clear Channel's buyout. Since the initial deal was announced in December 2006, the buyout has been marred by various parties disputing the price, the sale of certain assets and financing arrangements.

Those issues have knocked shares of Clear Channel more than 30% below the $39.20 buyout price as investors cast doubt on the deal. Before this week's developments, completion of the buyout was expected within days.