The big story today is the potential collapse of the LBO of Clear Channel Communications (CCU), the nation’s largest radio station owner (“Major Buyout Deal Is Close To Collapse” (subscription required), The Wall Street Journal, Wednesday March 26, A1).
Private equity firms Thomas Lee Partners and Bain Capital had agreed to acquire Clear Channel for $27 billion in September of 2006. But what is happening now is that the investment banks that had agreed to provide $22 billion in financing for the deal are balking.
There is no market for junk bonds or collateralized loan obligations (CLOs) right now and so these firms would be stuck holding much of the debt on their own books. This would result in writedowns for them and big exposure to any potential problems at Clear Channel.
The financials have sold off on the news (XLF: -3%) and have led the entire stock market down today.
There are still a number of other big LBOs out there that have yet to be completed, as far as I know, such as First Data, and it will be interesting to see if this becomes the next shoe to drop in the evolving credit crisis.