With a $22 billion in financing at stake, a hearing over the disputed buyout of radio giant Clear Channel Communications drew a packed audience in lower Manhattan today.

Runners for hedge fund managers and law firms showed up early at the New York State Supreme Court for the afternoon hearing. One hedge fund representative who showed up was juggling two BlackBerrys and loudly complaining about the crowd turning into a "clusterfuck," ruining the time spent by his runner. (He got in nonetheless.)

While today's hearing produced some colorful internal bank emails -- including one that wished the recipient good luck in getting out of the deal, adding that "lot of bonuses were on the line" -- the case centers on a commitment letter the banks signed last May, just before the credit crunch hit.

The two private equity firms leading the Clear Channel buyout are trying to force the banks to close on the commitment letter. It is part of a two-prong legal attack on the banks. Another lawsuit, filed by Clear Channel in a Texas court, contends that the banks are liable for tortuous interference with the buyout agreement by not providing the financing.

The hearing today, before Justice Helen Freedman, was on a motion for summary judgment by the banks seeking to throw out the private equity firms' claims.

Guy Miller Stuve (rhymes with "groovy") of Davis Polk & Wardwell, argued for the banks, Citigroup, Morgan Stanley, Credit Suisse, the Royal Bank of Scotland, and Deutsche Bank, in the New York courtroom.

Referring to the plaintiffs' argument that the court should order the banks to perform a specific action (financing the deal), Stuve said, "The plaintiffs are asking your honor to be the first New York judge to grant specific performance in a contract to lend money not involving real estate."

He noted that after an exhaustive and expensive search, all that the lawyers for the private equity firms could find was a Nassau County trial judge's opinion involving a mortgage loan in connection with the purchase of a loan.

Struve tried to anticipate the argument of Mark Hansen of Kellogg, Huber, Hansen, Todd, Evans & Figel, who represents the two private equity firms, Thomas H. Lee Partners and Bain Capital.

"They seize on the term 'unique,' " Struve pointed out, referring to language in the Nassau County case involving the house. "Just using the word unique does not establish specific performance."

Struve also told the judge she would "hear a lot about emails."

Sure enough, when Hansen rose to make his argument, a Power Point slide show of emails began. But Hansen also remarked that he was "delighted" that Struve had said that the case came down to the commitment letter, and not the emails, however colorful their language might be. At page 21 of the banks' brief, Hansen said, the defendants acknowledged that a commitment letter was a "binding" contract. (Actually, the banks' brief called it a "binding preliminary agreement that left numerous open terms to be negotiated.")

Hansen reminded the judge of black-letter law of binding contract. "If there were material open terms, this would not be a contract," he said.

Last August, with the credit crunch in full bloom, one internal email said the banks needed "to start focusing on a plan of action for restructuring the financing." Another email from Morgan Stanley wondered, "Is there something more severe that we could be doing? Would it have an impact other than pissing off our clients?"

In response came a "killer admission," in Hansen's view. "I don't think there's much we can do within the deal we signed."

The banks insisted on what Hansen referred to as a "deal killer," prohibiting Clear Channel from using loan proceeds or even its own cash to repay $1.8 billion in existing company debt due to mature in 2011. One internal bank email suggested "let's draft the nuclear version" of the documents, and another from Credit Suisse that said "these are meant to be draconian terms." Hansen put the definition of draconian from Webster's dictionary up on the screen, drawing a smile from Justice Freedman as she took notes.

Hansen argued that the private equity firms sponsoring the buyout would be "losing a unique asset."

"Clear Channel is more unique" than a mere house he said. "We are closer to specific performance than a house."

Justice Freedman asked few questions during the argument. She simply referenced the cases cited by both sides.

Had the case been heard in Delaware, there might have been more pressing questions from the bench on how each side interpreted the contract. Justice Freedman's questions were more basic: For instance, she asked for an explanation of the revolver loan facility --- the one that the banks sought to limit access to for repayment of debt.

At the end of his argument, Hansen indicated that his clients would seek to split claims that the banks committed fraud and violated a Massachusetts consumer protection law --- based on a meeting held there -- from a May 5 trial of the lawsuit.

The judge did not seem inclined to split the trial. She also cautioned both sides not to "look forward too much" to a May 5 start, noting that she has another trial wrapping up.

Time is of the essence. The merger agreement is set to terminate June 12.

If the banks succeed in getting the private-equity claims thrown out, they would still face the litigation in Texas.

Karen Donovan