UPDATE 2-NY judge reserves judgment in Clear Channel case

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NEW YORK, April 24 (Reuters) - A New York state judge on Thursday made no immediate ruling on a group of banks' request to dismiss a lawsuit seeking to force them to fund a $20 billion buyout of Clear Channel Communications Inc CCU.N.

After hearing an hour of oral arguments, New York State Supreme Court Judge Helen Freedman did not indicate when she would rule on the request. A May 5 trial date in the case may be delayed, the judge said.

“Don’t look too forward to May 5,” she said. “I might have to extend it a few days after.”

Private equity firms Thomas H. Lee Partners [THL.UL] and Bain Capital Partners sued the banks -- 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 leveraged buyout of Clear Channel.

The banks are accused of balking at providing financing after credit markets deteriorated last year.

The banks sought to have Judge Freedman dismiss the lawsuit arguing they were not yet in breach of contract according to the commitment letter they signed with the private equity firms. That commitment does not expire until June 12.

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

Mark Hansen, a lawyer for the private equity firms, said the bankers, “cooked up a set of loan documents that are nuclear, draconian and punitive” in an attempt to void the contract.

The banks have provided more than 400,000 documents since the discovery phase of the lawsuit began, their lawyer, Guy Struve, told the judge.

Projecting some of those e-mails onto a screen, Hansen highlighted a series of loan conditions that grew increasing onerous over time, including one that insisted the private equity firms could not use their own cash to repay the debt.

“Ah, there will be war,” one bank executive told another in an e-mail.

Hansen told the judge: “They want to lose the war. They want to lose the deal ... They want the deal to blow up.”

The banks’ Struve argued that, in New York State, there was no law covering an arbitrary breach of contract and that the private equity firms’ lawsuit was premature. (Reporting by Leslie Gevirtz; Editing by Andre Grenon)