March 26 (Bloomberg) -- Bain Capital LLC and Thomas H. Lee Partners LP sued a group of banks led by Citigroup Inc. to force them to honor an agreement to finance the buyout firms' $19.5 billion acquisition of Clear Channel Communications Inc.

Bain and Thomas H. Lee filed complaints in New York state court in Manhattan today, claiming the banks breached their funding commitments. Clear Channel joined the private-equity firms in a suit filed in Texas state court in San Antonio, where the company is based, alleging the banks interfered with the takeover by refusing to provide loans.

The banks ``competed energetically in 2006 for the opportunity to provide more than $22 billion in financing,'' Lee and Bain, both based in Boston, said in one of the New York lawsuits. ``The banks have balked at their obligations due to a simple case of lenders' remorse.''

Citigroup, Deutsche Bank AG, Credit Suisse Group, Morgan Stanley, Royal Bank of Scotland Group and Wachovia Corp. stand to lose at least $2.7 billion because loan prices have tumbled since they agreed to finance the transaction last April. Clear Channel's stock has traded below Bain and Thomas H. Lee's $39.20-a-share offer as credit-market turmoil raised investor concern that the deal wouldn't be completed.

The banks said in a statement that the lawsuits are without merit. In New York, the purchasers asked a judge to order the banks to provide the promised loans. In Texas, Clear Channel asked for an order banning the banks from interfering with the merger agreement and sought more than $26 billion in damages.

`A Deal Is A Deal'

``The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt,'' Clear Channel Chief Executive Officer Mark Mays said today in a statement.

The buyers said the banks tried to change terms of the lending agreement, including replacing six-year financing with a three-year bridge loan. The banks are attempting to impose terms that ``no responsible purchaser could ever accept,'' Bain and Thomas H. Lee said today in a statement.

Michael Kelly, a managing partner at McCarter & English in Delaware, said the banks will have a hard time defending against the suits.

``A deal is a deal, and you have sophisticated people on both sides,'' Kelly said. ``There's no escape clause in an agreement that says `if the market crashes we get to get out of the deal.' They signed the agreement. If they don't like it now, there's not a lot they can do about it.''

Stock Drop

Clear Channel, the largest U.S. radio broadcaster, had its biggest drop in New York Stock Exchange composite trading in almost 19 years today before the lawsuits were announced. The shares fell $5.64, or 17 percent, to $26.92 at 4:15 p.m.

In late trading Clear Channel rose 8.1 percent to $29.10. At that price, the stock is trading at a 25 percent discount to the buyout offer.

The buyout, announced in November 2006, was initially criticized by large investors as being priced too low. Clear Channel approved the purchase after Thomas H. Lee and Bain boosted their bid and offered investors a 30 percent equity stake in the new company. Shareholders voted in favor of the deal in September 2007. Breakup fees are as much as $600 million.

``The bank group presented the sponsors with credit agreements fully consistent and compliant with the commitment letter,'' according to a statement issued by Citigroup spokeswoman Danielle Romero-Apsilos on behalf of the bank group. ``The bank group has been and remains prepared to honor the obligations as set forth in that letter. We believe the suits are without merit and will contest them vigorously.''

Pennzoil Lawyer

Clear Channel said it hired Texas litigator Joe Jamail to handle its lawsuit, which demanded a jury trial. Jamail successfully defended Pennzoil in its 1985 suit against Texaco Inc. over Texaco's acquisition of Getty Oil Co.

Clear Channel filed a lawsuit in Delaware last month against Providence Equity Partners Inc. after the LBO firm sought to back out of the $1.23 billion purchase of 56 television stations. Providence Equity, in turn, sued its lender, Wachovia Corp., which is based in Charlotte, North Carolina. Providence Equity settled the dispute with Clear Channel on March 14, agreeing to buy the stations for a reduced price of $1.1 billion.

Banks retreated from most leveraged buyout lending in June after losses on subprime mortgages began to rise and as much as $400 billion in debt sat unsold and falling in value on their books.

Free-flowing debt allowed buyout firms to undertake a record $745 billion of transactions last year, according to data compiled by Bloomberg. That's changed so far in 2008, with $56 billion of announced deals, a 71 percent drop from a year earlier.

More Suits

The Clear Channel lawsuits follow unsuccessful attempts by SLM Corp., United Rentals Inc. and Alliance Data Systems Corp. to force completion of takeovers after buyers backed out of the deals.

SLM, the Reston, Virginia-based student-loan company better known as Sallie Mae, dropped a lawsuit in January that sought to require a group led by New York-based buyout firm J.C. Flowers & Co. to pay $900 million in breakup fees. Flowers abandoned a planned $25.3 billion purchase in September.

United Rentals, the largest U.S. construction-equipment rental company, lost a bid in December to get Cerberus Capital Management LP to complete a $4 billion takeover. A Delaware judge ruled the buyout agreement allowed New York-based Cerberus to pull its offer. Cerberus ultimately paid a $100 million breakup fee to the Greenwich, Connecticut-based company.

Alliance Data, a Dallas-based credit-card processor, sued Blackstone Group LP in January, claiming the buyout firm was using regulatory obstacles as an excuse to back out of a $6.6 billion takeover. The company dropped the suit the next month after being convinced that New York-based Blackstone would work to complete the transaction. Alliance accused the firm again on March 17 of breaching its agreement to work with regulators. The deal hasn't been consummated.

The main New York case on the Clear Channel buyout is BT Triple Crown Merger Co. v. Citigroup, 08600899, New York State Supreme Court, County of New York (Manhattan). The Texas case is Clear Channel Communications Inc. and CC Media Holdings Inc. v. Citigroup, 2008CI04864, Texas District Court, Bexar County, Texas.

To contact the reporters on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net.

Last Updated: March 26, 2008 20:06 EDT