[UPDATE: The two private equity firms and the six banks have reached an agreement over the financing of the Clear Channel Communications buyout. The new deal lowers the price to $36 per share, from $39.20 per share.

In the annals of busted buyout deals, the feud among two Boston-based private equity firms and six banks over the financing to take Clear Channel Communications private is one of the few that resemble a Wagnerian opera.

New York Supreme Court Justice Helen Freedman ratcheted up the tension on Monday by postponing the civil trial by a day. That led some news media to speculate about an "imminent settlement" of the suit, which stems from the banks' alleged attempt to walk away from financing the $22 billion buyout.

Despite that, a gaggle of people queued up in the hallway before Justice Freedman's courtroom by 10:45 this morning, holding places for hedge fund managers and arbitragers. Good thing the masters of the universe weren't there themselves: The trial was set to begin at 2 p.m.

The first witness for the plaintiffs, buyout firms Bain Capital and Thomas H. Lee Partners, was John Connaughton, a Bain Capital managing director who was the lead negotiator on the leveraged buyout.

Under methodical questioning by Mark Hansen, a veteran litigator from Kellogg, Huber, Hansen, Todd, Evans & Figel, Connaughton offered a tutorial on the mechanics of leveraged buyouts. Connaughton explained that private equity firms often work with the same banks, even the same bankers. In his tenure, he said, Bain handled 300 deals, with leverage provided by banks.

Has any bank walked away from a commitment letter, after a successful bid with corporate management? "In my experience, in 19 years, that has never happened," Connaughton said. (A virtual drum roll went out in the cramped, poorly ventilated courtroom.)

In fact, he said, the two lead banks in this transaction, Citigroup and Deutsche Bank, were the same banks that had worked with Bain Capital on the largest L.B.O. in history, the $33 billion buyout of Hospital Corporation of America. That deal closed just months before the Clear Channel opportunity arose in November 2006.

In his answers, Connaughton repeatedly described the "unique" aspects of Clear Channel's business: It is the largest radio company in the world, he said.

"They are considered to be one of the most exceptional performers in the media industry," with 30 percent market share, "unique" licenses, and outdoor billboard real estate that cannot be duplicated because the permits for such advertising are no longer granted.

Connaughton called them a "fairly unique property for advertisers." There is that word, unique, again. "If you were to ask any one in the radio business," he said, they would say, "there is no other Clear Channel."

All of this, subtly or not, was meant to establish that Clear Channel is a unique real estate asset. Under New York law, the usual remedy for a broken promise to lend money is to award cash damages rather than compel a lender to actually make the loan. The idea is that borrowers can get money elsewhere and only need to be compensated for their inconvenience. There are, however, some exceptions: One involves unique real estate assets. If Bain can establish that Clear Channel is a unique property, it could persuade the court to order the banks to make the loans as originally agreed.

Connaughton explained that Clear Channel's shareholders did not accept the first deal that Bain reached with the company's executives. That led to questions about the May 17, 2007, commitment letter signed by the banks, providing financing for a richer deal.

And here is where the fun began with wonky clauses loved only by mergers-and-acquisitions lawyers. There was, for instance, no "market MAC" in the financing deal — that would be a clause allowing the banks to get out of financing by a "material adverse change" in the market.

First off, corporate boards are "increasingly sophisticated about what risks they are willing to assume in selling," Connaughton said. And was it important to Bain? "Sure," he said. The buyout firms were expecting a closing date 18 months from the deal, owing to regulatory hurdles.

The banks, he said, gave the buyout firms a very good deal. "Quite unique," he said, enabling the firms to be very aggressive in the price they could offer to shareholders.

In the new deal, there was something called a Delayed Draw Term Loan (a term that seemed to make Freedman wince from behind her glasses), a $2 billion revolving line of credit, and another credit facility called an Accordion.

At this juncture, Hansen made use of his Power Point skills, projecting explanations of these terms on a huge screen. These funds were supposed to be used for "general corporate purposes," and "working capital," among others. He called these provisions "very common."

Clear Channel, at the time of the deal, had $5 billion in existing notes that would come due during the seven-year life of financing deal by the six banks. At the end of the day, Hansen, like any smooth litigator, built his diva moment: He asked Connaughton whether the firms would ever have agreed not to be able to use existing cash, or revolving credit and the like to pay down the company's pre-existing debt. No, came the answer.

The clean-cut Bostonian gave a star performance in his answer: "What is ironic here is, I don't think the banks would have wanted it, because they would not have wanted a liquidity crisis, and I certainly don't think management would agree."

With that, court adjourned, leaving the gallery hankering to hear more about the "poisonous terms" that the banks allegedly forced on the buyout firms after the credit crisis hit and they got lenders' remorse. Stay tuned.

by Karen Donovan