July 1 (Bloomberg) -- Clear Channel Communications Inc.'s banks, seeking investors to help finance the U.S. radio company's $17.9 billion leveraged buyout, cut the offering price on some loans, according to people with knowledge of the offering.

Citigroup Inc. and Deutsche Bank AG are leading banks offering $3 billion of the debt to investors in the mid-80-cents range, down from 90 to 91 cents on the dollar last week, said the people, who declined to be identified before the loans are sold.

The price cut reflects a decline in average actively traded high-yield, high-risk loans. Prices fell to 89.9 cents on the dollar from 92.1 on June 19, the first time it dipped below 90 cents since April, according to data compiled by Standard & Poor's LCD. The discounting indicates that a rally in loan prices in April and May has ended.

``It's a tough time to get a deal done,'' said Matthew Wilcox, an analyst at KDP Investment Advisors Inc. in Montpelier, Vermont. ``Banks may have to increase the discount or change the terms of the debt.''

Jonathan Calder, head of loan sales for Citigroup in New York didn't return a call seeking comment. John Gallagher, a spokesman for Frankfurt-based Deutsche Bank, declined to comment. The two banks are leading the sale. Clear Channel spokeswoman Lisa Dollinger also didn't return a call.

Morgan Stanley, Wachovia Corp., Credit Suisse Group AG and Royal Bank of Scotland Group Plc are the other banks providing $19.1 billion of debt financing for Clear Channel, according to a U.S. Securities and Exchange Commission regulatory filing on June 2.

Legal Fight

Private-equity firms Bain Capital Partners LLC and Thomas H. Lee Partners LP, both based in Boston, agreed in November 2006 to buy Clear Channel and obtained commitments from lenders for $22.1 billion of debt financing.

Banks sought to back away from the agreement in March, prompting Bain and Thomas Lee to sue.

Clear Channel, the largest U.S. owner of radio stations, settled the legal dispute between the private-equity firms and the banks by agreeing to a reduced offer of $36 a share, or 8.2 percent less than the $39.20-per-share price that the buyout firms committed to pay last year. The San Antonio-based company also said it would pay higher interest rates on a reduced amount of debt.

Facing Losses

``The steep discounts suggest the banks are facing considerable losses,'' Dave Novosel, a credit analyst at Gimme Credit Publications Inc. in Chicago wrote in a note today, suggesting the banks may sell the loans at 85 cents on the dollar. ``The only solace for the banks is that the renegotiated deal led to a reduction in the amount of debt needed to complete the LBO.''

Clear Channel was unchanged at $35.20 in New York Stock Exchange composite trading today. The company anticipates its takeover will close on July 30 after shareholders vote on the purchase July 24.

Losses on leveraged buyout loans contributed to $400 billion of credit losses and writedowns at the world's largest banks. Slumping demand from investors left lenders holding more than $220 billion of loans on their books last year. That has since been whittled down to $70 billion, according to analysts at JPMorgan Chase & Co. in New York.

Loans, Bonds

The loans consist of a $1.115 billion six-year term loan priced at 3.4 percentage points above the London interbank offered rate, according to the filing.

Lenders also granted a $10.7 billion term loan due in seven and a half years, a $706 million term loan with the same maturity, as well as a $1.25 billion term loan that can be used to refinance Clear Channel's existing debt, a $2 billion revolving credit line and a $1 billion asset-based credit line.

The term loans are priced at 3.65 percentage points above Libor. Three-month Libor, a borrowing benchmark, is currently set at 2.79 percent.

The banks are also providing $2.31 billion of high-yield bonds, comprising $980 million of 10.75 percent notes and $1.33 billion of 11 percent toggle notes both due in 2016, the filing said.

``We expect demand for the new issues to be tepid as the rumored decrease in loan prices is likely indicative of investor interest,'' Novosel wrote in the report.

To contact the reporter on this story: Pierre Paulden in New York at ppaulden@bloomberg.net

Last Updated: July 1, 2008 16:17 EDT