Few cases have attracted as much attention in private equity and leveraged finance circles as the alleged refusal of banks to fund the $21 billion buyout of Clear Channel Communications by Bain Capital and THL Partners. The litigation, settled in mid-May, left some interesting legal questions unanswered, such as the general enforceability of financing commitment letters and availability of specific performance in that context. It is reported that the settlement entailed a lower price for Clear Channel stock under the revised merger arrangements and regarding debt facilities, a lower debt amount and increased pricing. The other financing terms were consistent with the commitment letter.
English and Australian courts have awarded specific performance to enforce merger and lending obligations. Bidders and banks that enthusiastically commit themselves in bid situations with limited outs should take care. They may well be forced to close the deal.
No financing out
In November 2006, Clear Channel...