EQUITY FIRMS TURN DOWN BANKS' OFFER FOR ARBITRATION IN CLEAR CHANNEL DEAL

A group of banks funding the private equity buyout of Clear Channel have agreed to enter binding arbitration to resolve their dispute about backing the $19.4 billion deal, but private equity firms Thomas H. Lee and Bain Capital Partners have turned down the offer.

In a letter delivered to the private equity firms, the banking consortium claims it is willing to abide by the decision of an independent arbitrator to resolve the dispute within the next six weeks.

“The banks remain willing to fund the Clear Channel acquisition,” said the letter from Citigroup, Morgan Stanley, Credit Suisse Group, Royal Bank of Scotland, Deutsche Bank and Wachovia.

The private equity firms and Clear Channel recently sued the banks in Texas and New York courts to force them to fund the deal. The banks insist they are prepared to go forward, but that the private equity firms would not agree to the final terms of the financing agreement.

In return for agreeing to arbitration, the banks are demanding the court actions be dropped.

The banks face billions in losses if the deal is completed because of the credit-market turmoil that has made it impossible for them to package the leveraged debt and sell it off. With debt marked down by 15%, the banks would take a hit of nearly $3 billion on the $22 billion it is committed to lend to fund the deal, with $18 billion of that as senior secured loans.

And you thought your credit card debt was bad.