• by Erik Sass  @eriksass1, May 13, 2008

Clear Channel Communications may be close to reaching a settlement out of court with the banks that were supposed to fund its buyout by private-equity firms, according to news reports on Monday afternoon.

Rumors of a settlement began swirling after a New York Supreme Court judge delayed the start of the trial without explanation. In New York, Clear Channel and its intended private-equity buyers, Thomas H. Lee Partners and Bain Capital Partners, are suing to force the consortium of six banks to finance the deal per the original agreement.

Speculation was also stoked by the delay of a parallel trial in San Antonio, Texas, where Clear Channel and the private-equity firms are suing the banks for tortious interference, seeking $26 billion in damages.

After New York State Supreme Court Judge Helen Freedman's decision to delay the trial, Clear Channel's share price rose 9.6% to $32.87 amid heavy trading, indicating that investors believe an agreement is in the works.

According to a report published on The Wall Street Journal Web site, the negotiation could involve a cut in the price to be paid for Clear Channel, from $39.20 per share to as little as $36. This would lessen the burden of risk for the lenders--which had second thoughts about financing the deal, given the global credit contraction and the slumping fortunes of the radio business in general.

However, such an agreement would require the consent of Clear Channel shareholders, who have proven to be fickle in the past. In November 2006, Clear Channel's management first proposed to sell the company to Lee and Bain for $37.60 per share, but shareholders demanded more. After protracted wrangling, they finally agreed to a sale price of $39.20 in May 2007--just as the global credit crisis began to unfold.