Suing Your Own Client?

Posted by T.W. Hanson - Feb 27th, 2008 at 20:02

lawsuit

Wachovia has filed suit against Providence Equity Partners, one if its clients. It is arguing that by Providence improving the terms of a leveraged buyout of Clear Channel Communications it no longer has an obligation to provide a portion of the financing. They are well within the legal rights to do this and may win. However, what is their motivation?

The terms of the deal improved. Providence’s renegotiation of the buyout makes the financing more palpable to lenders like Wachovia. This is analogous to stopping at a Waffle House, arguing that the bill is to high and refusing to pay after they lower the tab.

This is a PR nightmare for any future Wachovia financings with private equity firms. Providence is large, and this will not go unnoticed by other PE shops.

Appetite for risk at Wachovia has clearly contracted since they orginally agreed to the Clear Channel buyout financing. The big question is what has made them bring in their horns: a greater level of intelligence than at the original time of signing, fear or big trouble in the banking sector.

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  1. This reminds me of the RIAA’s long term strategy of suing their potential/former customers who “steal” their music. Although it might make the numbers line up quarter to quarter, this sort of strategy is rarely sustainable.

    Comment by Tad Johnson — February 28, 2008 #

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