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Clear Channel, Buyers Sue Lenders

SAN ANTONIO -- March 26, 2008: The Clear Channel privatization is going to court, as Clear Channel and its private equity purchasers have filed suit to force the banks that agreed to finance the $19.5 billion buyout to close the deal.

The suits were filed by Bain Capital and Thomas H. Lee Partners in New York and by Clear Channel in Bexar County, TX. Clear Channel said it will be represented by Joe Jamail, who was Pennzoil's chief attorney when it won its multibillion-dollar merger-interference suit against Texaco in 1985.

Bain Capital and Lee Partners said the suits were filed against Citigroup, Morgan Stanley, Credit Suisse, the Royal Bank of Scotland, Deutsche Bank, and Wachovia "to enforce binding commitments the banks made to provide debt financing for the private equity firms acquisition of Clear Channel Communications Inc."

"The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt," said Clear Channel CEO Mark Mays. "The behavior of these banks is irresponsible, unprofessional, and unjustified. The defendants have made clear that they are determined, by any means possible, to destroy the merger and thus avoid their obligation to fund, as they are required legally to do."

The suit says the opportunity to acquire Clear Channel is "uniquely valuable and irreplaceable" and further claims that the banks' recent actions create "immeasurable damages exceeding the parties' agreement for $26 billion." The $26 billion figure includes assumption of debt.

Bain Capital and Lee Partners said the complaints detail the actions the bank took to renege on their commitments, "culminating with an effort to derail the transaction by unreasonably insisting on replacing long-term financing of at least six years with bridge financing of only three years, thereby preventing the close of the transaction."

In a joint statement, Bain Capital and Thomas H. Lee Partners said, "It seems clear that lenders' remorse set in when credit markets worsened. Now they are trying to walk away from their commitment letter, which clearly states that they bear all the risk that conditions in the debt markets might change. The banks are attempting to do so by changing the deal in ways no responsible purchaser could ever accept -- replacing an extended, long-term financing package of at least six years that they've been committed to all along with a short-term three-year bridge financing."

They buyers also declare that they are committed to the transaction, saying, "We have invested 18 months of time and effort to own Clear Channel. We want to do this deal. We are ready to close, have funded the equity portion of the purchase consideration, maintain our enthusiasm for the investment, and are fully prepared to fulfill our contractual obligation to complete the deal."

But they claim the terms the banks are now asking for would "place unreasonable and unprecedented operating restrictions on Clear Channel." The statement continues, "These restrictions would hamstring the company's competitiveness, create unfair obstacles to refinancing existing debt, and, we believe, install trip wires that could cause one of America's leading media companies to go into default.

There have been reports that the buyout was in trouble for weeks, and WSJ cause a huge stir in the industry yesterday when it reported that the deal was "near collapse" as the buyers and the banks tried to sort out the details of the credit agreements.

Clear Channel announced the sale back in November 2006, with a price of $37.60 per share. Shareholders protested the price and it was eventually bumped up twice, to 39 and then to $39.20, bringing the value of the deal to $19.5 billion. Shareholders voted to approve the deal in September 2007, and it was OK'd, with conditions, by the FCC in January and the Department of Justice in February.

The banks said in a joint statement, "The bank group has been and remains prepared to honor the obligations as set forth in [the May 2007 commitment] letter. We believe the suits are without merit and will contest them vigorously."

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