Providence Equity Partners Inc.'s more than $1 billion buyout of Clear Channel Communications Inc.'s television unit is a deal of the year for begetting, and then surviving, numerous lawsuits that entangled the buyers, seller and underwriters. The infighting challenged basic assumptions about commitment letters, an issue that still hangs over other deals in the pipeline.

The TV auction started as a side deal to Clear Channel's leveraged buyout. The San Antonio broadcaster put its 56-station unit up for sale when it announced its then-$26.7 billion LBO with the family of founder and chairman Lowry Mays, Thomas H. Lee Partners LP and Bain Capital LLC in November 2006.

Five bidders took part in the March television auction. Providence prevailed in April 2007, agreeing to pay $1.2 billion. The transaction was financed with what might have seemed an innocuous package from Wachovia Corp., Goldman, Sachs & Co. and UBS.

The unrest began in November. Amid a darkening outlook for the broadcasting industry and the ongoing credit market concerns, Providence told Clear Channel it was reconsidering. Frustrated with the deal's progress, Clear Channel sued in Delaware Court of Chancery in January, arguing that Providence should abide by the terms.

The two sides agreed to reduce the price to $1.1 billion, but another dispute soon unfolded. Wachovia claimed it was not bound to finance a revised deal, and filed suit in North Carolina.

Providence countersued in the Delaware Court of Chancery, saying the bank had "come down with an acute case of 'lenders remorse.' "

"It's a very important forerunner of the new world," said one source involved in the skirmish.

"The assumption among corporate lawyers and probably among practitioners was that commitment letters are as solid as gold," he added.

"Now you know that there is a legal issue as to whether commitment letters can even be enforced. What the practitioners thought was rock solid really, as a matter of law, is just an agreement to get to a final agreement."

Judge Leo Strine, who heard the case, called the dispute "a rich bouillabaisse of exciting M&A financing facts that we can dig into."

Known for his assertive, incisive manner, Strine would have given the allegations thorough scrutiny in what could have been an uncomfortable trial from a public relations perspective.

Wachovia agreed to finance the transaction, which closed on March 14. Clear Channel put the price tag at $1.1 billion, although Providence valued the deal at $1.012 billion with working capital adjustments.

The legal questions raised by the banks financing the deal foreshadowed the disputes that later threatened the parent company's sale to THL and Bain. The parties fought over venue. The lenders raised questions about the commitment letters underpinning the buyouts.

Clear Channel may have learned lessons in the Providence litigation. The TV litigation was uncoordinated, with each of the parties to the deal firing off lawsuits. In the later conflict, Clear Channel worked together with THL and Bain to file a suit in Texas that alleged tortious interference. (THL and Bain filed a separate suit in New York.) As with the television sale, Clear Channel came to terms with its lenders as trials over the deal were getting under way.

Although Clear Channel, Providence and Wachovia settled, their dispute has contributed to the increasingly contentious dialogue between buyers, sellers and bankers. Commitment letters and the resolution of open issues get more attention today. In some cases, sellers have been wary of PE buyers and some may want assurance of backstop financing if banks waver at closing. Providence's situation certainly holds out the possibility of grudges when the next cycle of LBOs occurs.

Questions about the enforceability of commitment letters and similar issues remain vital as other deals work through the pipeline. The one certainty is that there are open questions.

For now, at least, the bouillabaisse continues to simmer.

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