bloggingbuyouts

Clear Channel Communications Inc. (NYSE: CCU) is going on the offensive. Affiliates of Bain Capital and Thomas H. Lee are filing breach of contract suit against the banks in the buyout deal, and Clear Channel itself joined in the complaint.

The firms are filing suit against against Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia.

Some of the allegations are that banks inserted poison provisions, pretext and misdirection, and even a re-cut of the deal as they faced $2.65 billion in losses (that figure according to WSJ).

This one may be a done deal for sure now. When buyers and sellers have to start suing lenders, it is not all that frequent that those providing the leverage get forced into it.

But on the flip side, those banks should have to pay severe business penalties via a break-up fee for backing away.

Cheap debt is the fuel for the private equity boom. So, with rising interest rates and competitive pricing on buyouts, are we seeing problems starting to brew?

Perhaps so. According to a report from the Guardian Unlimited, the CEO of Royal Bank of Scotland, Sir Fred Goodwin, said banks need to be more cautious.

In a typical buyout deal, a group of banks usually syndicate buyout debt load to many players. It's a way to minimize the risk exposure.

But Goodwin thinks this is a bad idea. If banks want to get rid of the debt, shouldn't this be a red flag to investors? "We shouldn't do deals unless we were comfortable holding the credit ourselves. I think the market is getting quite toppish," said Sir Fred.

I think he has a good point.

The irony, of course, is that RBS is trying to buyout Amro. It's a mega deal that will involve lots of debt.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.