Clear Channel: The BCE Guinea Pig?

Clear Channel today warned in an SEC filing that its buyout may not close, which is generating headlines despite the manifest obviousness of such a statement. Had the company said that the deal will certainly close, then that would be news.

So let’s move on to what may actually be happening with some of the banks: They are using Clear Channel as a test case for BCE, which is on tap to be acquired for a whopping Cdn$52 billion.

Citigroup, Deutsche Bank and RBS are three of the six banks listed as defendants in the Clear Channel lawsuits, and also happen to be leading the Cdn$32 billion debt package for BCE. That’s a bigger nut than is being invested in Clear Channel, and therefore could represent a larger mark-to-market loss. So why not walk away from Clear Channel now and, if the penalties aren’t too severe, walk away from BCE next?

Sound far-fetched? Not according to sources on the buyside of Clear Channel, who think that’s exactly what’s happening. First the banks tried to see how tight they could squeeze the equity sponsors and, when that failed, they now want to see how the courts react to total abandonment (there is no relevant precedent).

There are obviously some big variables here — for example, Canadian courts versus American courts — but the banks are all about finding the cheapest out. And Clear Channel may just be the best guinea pig they’re going to find.