Bain, Lee Turn Down Banks' Arbitration Offer
April 22, 2008 at 11:14 AM (PT)
That didn't take long: Hours after the six banks involved in the CLEAR CHANNEL sale offered to go to binding arbitration to resolve the $19.4 billion deal, the WALL STREET JOURNAL reports that private-equity firms THOMAS H. LEE and BAIN CAPITAL PARTNERS rejected it outright.
Earlier in the day, the banks sent a letter to the private equity firms and CLEAR CHANNEL TODAY, saying they were prepared to submit to the decision of an independent arbitrator and believed that the matter could be resolved within six weeks. "The banks remain willing to fund the CLEAR CHANNEL acquisition," the letter said.
The banks remain willing to fund the Clear Channel acquisition.
The banking consortium includes CITIGROUP INC., MORGAN STANLEY, CREDIT SUISSE GROUP, ROYAL BANK OF SCOTLAND GROUP PLC, DEUTSCHE BANK AG and WACHOVIA CORP.
The private-equity firms and CLEAR CHANNEL recently sued the banks in TEXAS and NEW YORK in an effort to force them to fund the deal. The banks have insisted that they are prepared to go forward with the transaction, but that the private equity firms were not prepared to complete negotiations over the final terms of the financing agreement.
In return for arbitration, the banks are demanding that the court actions against them in TEXAS and NEW YORK be stayed.
The banks face billions in losses if the deal goes through because the credit-market turmoil has made it difficult for them to package leveraged debt and sell to investors. Such debt has typically been marked down by about 15%, meaning the banks would take a hit of nearly $3 billion. The banks committed to lend as much as $22 billion to fund the deal, $18 billion of it as senior secured loans.
The reason for the banks' hesitation to take on the deal under its current terms is becoming more obvious by the day -- they're already taking major hits in other credit write-downs and they can't take on more red ink.
Just today, according the WSJ, the ROYAL BANK OF SCOTLAND announced $11.7 billion of pretax write-downs and is about to ask shareholders to sign off on a $23.78 billion rights issue. Elsewhere, DEUTSCHE BANK will be writing down about $4 billion in this quarter; WACHOVIA recently admitted that it still had $1.3 billion in write-downs to go with a $7 billion capital infusion. MORGAN STANLEY has already written off about $3 billion in leveraged loans since 3Q '07 -- with $24 billion more on the hook. All told, that's about $20 billion in losses ... so far.