Banks ask N.Y. court to dismiss Clear Channel case

NEW YORK (Reuters) - A group of six banks, sued over the $20 billion buyout of U.S. radio operator Clear Channel Communications Inc (CCU.N), fought back on Monday, asking a New York state court to hear their request to dismiss the claims against them.

Private equity firms Thomas H Lee Partners and Bain Capital Partners filed complaints last week against Citigroup Inc (C.N), Morgan Stanley (MS.N), Credit Suisse Group (CSGN.VX), Royal Bank of Scotland Group Plc (RBS.L), Deutsche Bank AG (DBKGn.DE) and Wachovia Corp WB.N, to force them to fund the deal.

The private equity firms filed the lawsuits in New York and Texas last Wednesday, with Clear Channel joining the suit in Texas. A judge in Texas has issued a temporary restraining order to forbid the banks from refusing to finance the deal.

The buyout firms and Clear Channel claim the banks balked at providing financing when the debt markets deteriorated and asked for a change in terms of the deal that prevented them from reneging on their funding commitments.

The banks were to provide more than $22 billion financing and earn more than $400 million in fees.

Despite the public disagreement, the banks said on Monday that they are still willing to reach a funding agreement on "mutually agreeable terms" and there was still time to return to the negotiating table.

"Unlike the sponsors, we have consistently negotiated the open items in good faith," a spokesman for the banks said in an e-mailed statement, "and in fact were still doing so when without warning the sponsors took the unproductive step of asking a court to intercede in our discussions only hours after sending us revised terms to review."

The court filing from the banks claims that "plaintiffs have presented no basis for litigation, much less proceeding in an expedited manner," according to a copy obtained by Reuters.

The filing says that the banks had repeatedly asked the buyout firms for details on the loan agreement but received scant replies. It also says that they were not advised that the private equity firms would start litigation if an agreement wasn't reached by a certain date.

The banks also argued there was no basis for the buyers to seek an expedited trial, claiming that it "defies credulity" for all the depositions necessary to be completed in "little more than twenty-five days."

The private equity firms retaliated in an e-mailed statement that the banks' opposition was "more of the same 'run out the clock' strategy they have been pursuing since February."

"The claim that they were negotiating in good faith and blindsided by the litigation is preposterous, and clearly contradicted by the correspondence record," they said. "We want to complete the deal to buy Clear Channel, and are disappointed that the banks have chosen not to fund the transaction under the terms of the binding commitments they entered into almost a year ago."

Clear Channel was optimistic about a deal agreement. Mark Mays, its chief executive, said in an e-mail to staff obtained by Reuters, that the company was "fully committed to this transaction."

"Over the past week, we have taken additional steps to accomplish this goal and will keep you updated on our progress. While there is much uncertainty surrounding this transaction, it is my expectation that the merger will close," Mays wrote.

The dispute is the latest in a string of deals that have descended into litigation, as the credit crunch made financing loans more expensive and banks unwilling to take losses.

Clear Channel's shares closed on Monday at $29.22. The offer by Bain and Thomas H. Lee values it at $39.20.

(Reporting by Megan Davies and Jui Chakravorty; additional reporting by Paritosh Bansal; editing by Jeffrey Benkoe, Gary Hill)