SAN ANTONIO - A Texas judge issued a restraining order that effectively bars the banks that promised to finance the $19.5 billion buyout of Clear Channel Communications Inc. from backing out.
Bexar County Judge John D. Gabriel issued a temporary restraining order just four hours after Clear Channel and the private equity buyers, led by Bain Capital and Thomas H. Lee Partners LLC, both Boston-based, filed suit Wednesday in Texas and New York.
The firms argued that the lenders were trying to avoid honoring the financing commitment they made 18 months ago by turning a long-term loan into a short-term one with restrictions.
The judge found there was enough evidence that the plaintiffs could prevail and would be irrevocably harmed unless he issued an immediate restraining order.
He barred the six banks from "engaging in any other conduct that would operate to modify, compromise, jeopardize, sabotage, undermine, nullify, void, eliminate, hinder, or obstruct consummation of the merger agreement."
The banks, which include Citigroup Inc., Morgan Stanley, Credit Suisse Group, The Royal Bank of Scotland, Deutsche Bank AG, and Wachovia Corp., declined to comment on the order through a Citigroup spokeswoman yesterday.
The restraining order doesn't necessarily mean the deal will close, said RBC Capital Markets analyst David Bank, but it does keep the banks from just leaving the deal for dead.
"It's possible that the court scares all the sides into settling," he said.
The financing commitment letter that Clear Channel and the equity firms are trying to legally enforce doesn't offer the banks many outs even though they stand to lose $3 billion to $4 billion when they loan the funds. Only a major adverse change to the business really lets them off the hook, and because Clear Channel has been performing better than the industry, that argument is going to be a tough sell.
Gabriel ordered a hearing on an expedited trial April 8.
If the deal closes, the banks are likely looking at $3 billion to $4 billion in write-downs, something they're loath to suffer when they're already worried about other investments related to the struggling real estate market.
The lenders are likely to have trouble reselling the debt in a credit market that has slowed dramatically.