April 22, 2008 / 4:00 PM / 11 years ago

UPDATE 4-Banks seek arbitration in Clear Channel dispute

(Adds new comments from banks in paragraphs 2-3,5)

By Jessica Hall

PHILADELPHIA, April 22 (Reuters) - The banks involved in the $20 billion buyout of U.S. radio station operator Clear Channel Communications Inc (CCU.N) offered on Tuesday to enter binding arbitration with the private equity buyers to settle a dispute over funding the deal.

The offer, which came just two days before a court hearing in the dispute, was rejected by the private equity buyers, Thomas H. Lee Partners and Bain Capital Partners.

“By rejecting our proposal Bain and T.H. Lee are placing the transaction at risk and have demonstrated once again that they have no genuine interest in seeing this transaction close,” the banks said in a statement.

The banks include 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.

“We will continue to defend our legal rights in courts in New York and Texas and remain confident that our legal rights will be vindicated,” the banks said.

Earlier on Tuesday, the banks had said they would agree to the terms set through binding arbitration and they believed the situation could be resolved within six weeks. The banks said the deal would close before June 12.

“The banks remain willing to fund the Clear Channel acquisition,” the banks had said in a letter to the buyout firms, a copy of which was obtained by Reuters.

Yet the overture was met with skepticism by the buyout firms. Clear Channel declined to comment.

Clear Channel had agreed to be acquired at the height of the private equity boom last year. The market has since changed significantly, with the credit markets tightening and the cost of financing leveraged-loan debt surging.

The arbitration offer was “yet another disingenuous attempt by the banks to avoid living up to their commitments. The banks want to move this case into the back room because they fear that a public trial will clearly expose their misconduct,” the private equity firms said in a statement.

The buyout firms previously filed lawsuits in New York and Texas against the banks seeking to force them to fund the deal. Clear Channel joined them in the Texas suit, but is not a plaintiff in the New York case.

“We are ready to complete the deal to buy Clear Channel on terms consistent with the binding commitments the banks made nearly a year ago, and provided all the documentation needed to execute the funding, but the banks refused to sign,” the private equity firms said.

“The New York court hearing on April 24 offers a further opportunity for these critical issues to be revealed in the bright light of day,” the buyout firms said.

The banks were to provide more than $22 billion financing and earn more than $400 million in fees, but they balked when the debt markets deteriorated and asked for the terms of the deal to be changed, according to a copy of one of the suits.

Clear Channel is also joining the private equity firms in a complaint filed in Texas against the banks to force completion of the deal.

Those court cases would continue until any binding arbitration order is signed, the banks said. Upon signing the arbitration agreement, all the legal proceedings in New York and Texas would be stayed, the banks said.

“We believe that the foregoing framework ensures that the Clear Channel acquisitions transaction will be timely funded. The banks are prepared forthwith to proceed,” the banks said in the letter.

Clear Channel shares close at $29.74, up $1.25, or 4.4 percent, on the New York Stock Exchange. (Reporting by Jessica Hall; editing by Andre Grenon and Maureen Bavdek)

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