June 23 (Bloomberg) -- BCE Inc.'s buyers and their banks are fighting over financing for the $C52 billion ($51 billion) takeover, threatening to derail the biggest leveraged buyout after it was kept alive last week by Canada's top court.

The banks, led by Citigroup Inc. and Deutsche Bank AG, are pushing Ontario Teachers' Pension Plan and Providence Equity Partners Inc. to accept more onerous terms on the C$34 billion in debt needed to fund the LBO and perhaps kick in more equity, according to two people familiar with the talks. Both banks were among the lenders that held out for a lower price and higher borrowing costs in the Clear Channel Communications Inc. buyout.

``This puts the focus back on the banks,'' said Rick Nathan, a managing director at Kensington Capital Partners Ltd. in Toronto, which oversees C$400 million in private-equity assets. ``Now they will have to agree on the terms.''

Negotiations continued over the weekend following the decision on June 20 by Canada's Supreme Court that blessed the deal, said the people, who asked not to be identified because the talks are private. The justices overturned a lower court ruling that had blocked the acquisition on the grounds it short- changed bondholders of Montreal-based BCE, Canada's largest phone company.

BCE rose C$1.98, or 5.7 percent, to C$36.58 at 4:10 p.m. in Toronto trading, the most since April 2007. That's below where the stock was before the appeals court surprised investors by siding with the bondholders in their effort to kill the LBO.

After the high court's announcement, BCE delayed scheduled completion of the transaction to the end of the third quarter from June 30. The company said today that all regulatory approvals for the deal had been received.

Bigger Than TXU

Ontario Teachers', Canada's third-largest pension manager, and Providence, Rhode Island-based Providence Equity agreed a year ago to pay C$42.75 a share, or C$34.2 billion, for BCE. Madison Dearborn Partners LLC in Chicago and New York-based Merrill Lynch & Co. joined in the deal.

Including the assumption of debt, BCE would be the largest buyout on record, topping the $43.2 billion takeover of Dallas- based power producer TXU Corp. in October by Kohlberg Kravis Roberts & Co. and TPG Inc.

``We continue to negotiate the financing documents in good faith with the sponsors and stand behind our original commitment to the transaction,'' the banks said in an e-mailed statement after the decision was announced by the court, which said it would give the reasons for its ruling later.

In addition to New York-based Citigroup and Deutsche Bank of Frankfurt, lenders on the BCE deal are London-based Royal Bank of Scotland Group Plc and Toronto-Dominion Bank in Toronto.

``We expect all parties to the transaction will honor their commitments,'' Richard J. Currie, BCE's chairman, said in a June 20 statement.

Debt-Equity Mix

Public assurances aside, the banks began asking about a month ago for more restrictions on the borrowers and higher interest rates than originally proposed, said one of the people. The lenders may press the buyers to use less debt and increase the $7.75 billion in equity they agreed to invest, this person said.

The BCE deal was announced last June 30, weeks before the LBO boom of 2006 and 2007 became a casualty of the subprime- mortgage crisis. Investors, spooked by rising defaults among homeowners with poor credit, stopped buying all but the safest government debt. More than 60 buyouts announced last year, valued at a combined $174 billion, have been abandoned as borrowing costs more than tripled, according to data compiled by Bloomberg.

Banks were stuck with about $400 billion of LBO debt they couldn't sell to investors, an amount that has fallen to $73 billion as some bonds and loans were sold for a loss and other deals were canceled, according to fixed-income research firm CreditSights Inc. in New York.

Clear Channel Redux?

Hexion Specialty Chemicals Inc. sued Huntsman Corp. last week to back out of its $6.54 billion buyout of the chemical maker, which is based in Salt Lake City and run from a suburb of Houston. In the lawsuit, Hexion, owned by New York-based LBO firm Apollo Management LP, argued that Huntsman's financial performance makes financing the deal impossible.

The renegotiation of Clear Channel transaction may serve as a model for BCE. The deal was saved only after the San Antonio- based radio broadcaster accepted 8.2 percent less than the original $19.5 billion offered by Thomas H. Lee Partners LP and Bain Capital LLC. The Boston-based buyout firms agreed to pay higher interest rates on their debt, which the banks agreed to provide.

Differing Views

Greg MacDonald, an analyst at National Bank Financial Inc. in Toronto, said he doesn't expect the BCE deal price to be renegotiated.

``The BCE board has a strong bargaining position in that all of the conditions are met, in that this is a better deal than you've seen with other deals, in terms of the credit quality, in terms of the amount of leverage,'' he said.

Elliott Soifer, a vice president at Desjardins Securities Inc. in Montreal, isn't so sanguine.

``If Clear Channel and Huntsman have taught us anything, you never really know until the agreement is signed how solid the commitment is from the lenders,'' said Soifer, whose company holds about 1.9 million BCE shares, according to Bloomberg data.

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Jonathan Keehner in New York at jkeehner@bloomberg.net

Last Updated: June 23, 2008 17:07 EDT