"Hat in Hand": Financing the Leveraged Buyout of Clear Channel Communications

Abstract

In this case, John Connaughton, a managing director at Bain Capital, had joined forces in October 2006 with Thomas H. Lee Partners (THL) to acquire Clear Channel Communications in a historic $28 billion leveraged buyout (LBO). The plan had looked solid, and the private equity consortium was ready to close the deal. But this plan turned out to be only the first act.In late 2007 and early 2008, the banking group approached Connaughton more than once, asking to renegotiate the deal, characterizing its request as coming “hat in hand.” Then the banking group outright refused to fund the deal until new terms were met. Connaughton had invested a significant amount of his time and his company's resources to bring this deal to the table, so he was not inclined to concede to the new demands without a fight...but he also knew that a failed deal would have tremendous consequences for his company and for THL. What should he do? Excerpt UVA-F-1755 Aug. 31, 2017 “Hat in Hand”: Financing the Leveraged Buyout of Clear Channel Communications Large, complex transactions always seemed a bit operatic, and John Connaughton knew this one wasn't an exception. Two years had passed since Connaughton, a managing director at Bain Capital, had joined forces with Thomas H. Lee Partners (THL) to acquire Clear Channel Communications (Clear Channel) in a historic $ 28 billion leveraged buyout (LBO). Seven months before the effort had begun in October 2006, Thomas Lee, a respected pioneer in LBOs, had exercised a long-term plan to leave his eponymous Boston firm for New York. Connaughton had thought the irony of THL retaining Lee's name without his presence would be the most dramatic part about the deal. A few months back, the plan had looked solid, and the private equity (PE) consortium was ready to close the deal. But this plan turned out to be only the first act. Now, in early 2008, the second act was unraveling; Connaughton had to handle it, and quickly. The bank group contractually obliged to finance the Clear Channel deal was seeking—pleading, if bankers could be said to plead—to renegotiate terms for the $ 22 billion debt financing in play. Reneging on a binding contract—what sort of plot twist was this? Was the subprime mortgage crisis endangering this deal? Did the banks see Connaughton as ripe for manipulation, or were they coming to him for help? Connaughton's colleagues advocated taking the banks to court. Was that the right path? Could they restructure the deal? What expectations were realistic? At the end of the day, what should he recommend to the consortium? . . .