NEW YORK -(Dow Jones)- A temporary restraining order from a Texas state judge gives Clear Channel Communications Inc. (CCU) an early win in its dispute with banks that have agreed to finance its $19.4 billion buyout by two private-equity firms.

The move isn't definitive and will have to be debated in court. Those arguments will be closely watched by markets trying to determine whether billions of dollars worth of buyouts that were agreed to when funding was cheap can survive the credit crisis.

Jill Fisch, a law professor at the Fordham University School of Law in New York, said the cases, if they go to trial, have the potential to more broadly affect future financing deals - particularly as lenders, who are concerned about the credit crisis, try to step back from more highly leveraged deals.

"People are going to be taking some sort of signal from what happens in this case," Fisch said.

Late Wednesday, Bexar County, Texas, District Court Judge John D. Gabriel issued a temporary restraining order prohibiting the banks from taking any actions that would interfere with the acquisition of Clear Channel by buyout firms Thomas H. Lee Partners and Bain Capital LLC prior to an April 8 court hearing on the matter.

The judge said in part that the lenders were prohibited from "interfering with or thwarting consummation of the merger agreement by refusing to fund the merger transaction as agreed in the commitment letter."

That would seem to indicate the banks would have to fund the deal if the San Antonio radio and entertainment company and its buyout partners force them to in the near term.

But mergers-and-acquisitions lawyers and law professors say they don't believe the judge intended the temporary order to force the banks to provide more than $ 22 billion in financing before the two sides can state their case. The deal must close by June 12.

"You have to understand what a TRO (temporary restraining order) is - an order issued without the benefit of seeing anything from the defendants," said Joel I. Greenberg, co-chairman of Kaye Scholer LLP's corporate and finance department in New York.

On Wednesday, THL Partners and Bain Capital filed lawsuits in state courts in New York and in Texas alleging that the banks - Citigroup Inc. (C), Morgan Stanley (MS), Credit Suisse Group (CS), Royal Bank of Scotland Group PLC (RBS), Deutsche Bank AG (DB) and Wachovia Corp. (WB) - were improperly trying to forgo funding the deal.

They are alleging breach of contract and fraud in the New York case and improper interference with the merger by the banks in the Texas case, which Clear Channel joined as a party. Clear Channel and the buyout firms are seeking $26 billion in damages in the Texas case.

The banks are expected to challenge the court's order and could do so as soon as Thursday. Lawrence A. Hamermesh, a corporate law professor at Widener University School of Law in Delaware, said they could ask the Texas judge to set aside the order until a hearing is held.

The New York case has been assigned to state Supreme Court Justice Helen Freedman.

Under the deal, THL Partners and Bain Capital would acquire Clear Channel for $19.4 billion and take on $7.8 billion of its debt.

The acquisition agreement was initially reached in November 2006, and the banks revised their commitment letter to fund the deal in May 2007.

Since then, the crisis in the credit markets has made it more difficult for the banks to reduce their risks by selling the debt in the secondary market. The lawsuit alleges the banks are trying to scuttle the deal after "potential losses to the banks from the financing they had agreed to provide began to outstrip the huge fees the banks expected to earn." The complaint describes it as a "simple case of lenders' remorse."

Richard Langan, a business and finance lawyer with Nixon Peabody in New York, said Thursday that he doesn't believe the temporary restraining order requires the banks to fund the case immediately. Instead, the order requires the banks to remain in a position where they can fund the buyout. Still, he said the temporary restraining order was an early win for Clear Channel and its private- equity buyers.

The order, Langan said, "signifies the court is somewhat sympathetic to the arguments of Clear Channel."

Merritt B. Fox, a Columbia University law professor, said the Thursday that the Texas judge's order "sounds a little bit backwards." Usually, a restraining order is issued to preserve the status quo, as opposed to ordering someone to affirmatively take an action at the center of a dispute, he said.

The key question, if the case isn't settled out of court, is whether the judge will force the banks to adopt certain terms in the final financing agreement, Greenberg, the Kaye Scholer lawyer, said. Typically, the final terms of the financing are negotiated and laid out in definitive documents after a commitment letter is reached, he said.

Scott Sperling, co-president of THL Partners, told CNBC on Thursday that he believes the TRO is "an indication of the strength of the case that we have."

"The purchasers definitely will move quickly to complete the loan documentation with the banks," a person inside Clear Channel told Dow Jones Newswires on Thursday. "Of course, if the banks refuse to cooperate, we'll be back in court."

Greenberg said he isn't sure that the case will have much impact beyond the deal at hand, since "nobody is writing commitments today that look like this," given the credit markets.

Shares of Clear Channel recently traded up $3.02, or 11%, to $29.94.

-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com

-By Shira Ovide, Dow Jones Newswires; 201-938-5287; shira.ovide@dowjones.com

  (END) Dow Jones Newswires
  03-27-08 1455ET
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