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Clear Channel Heads Back to State Court

A federal judge shot down a request by banks trying to get out of a financing deal to move the case to a friendlier venue.

The crumbling $19 billion bid to take

Clear Channel

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private received a breath of new life late Wednesday after a lawsuit over its funding headed back to state court.

Shares of Clear Channel were up more than 3% in the late trading session to $29.20, after

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reported that a federal judge ordered a Texas court to again hear the case, pitting two private equity firms vs. six banks. The banks, involved in the financing of the deal, had lobbied to have the suit moved from the Texas district court to a federal court in hopes of finding a friendlier judge.

Last week, private-equity firms Bain Capital and Thomas H. Lee Partners won a temporary restraining order against the banks after a Texas judge ruled Clear Channel would face irreparable damage if funding was refused. Despite fears the banks will wiggle their way out of the financing, the private-equity firms insist they will press on with the deal.

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Clear Channel had warned in a regulatory filing Friday that "a closing may not occur" and that it could not provide an expected closing date. Although Bain and THL have stated they want to own Clear Channel, many suspect both firms will bail out of the deal by blaming the banks and will ask the financiers to pay the $600 million in break-up fees.

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 25% below the $39.20 buyout price as investors cast doubt on the deal. Before the latest developments, completion of the buyout was expected before the end of March.