San Antonio-based Clear Channel joined them in the Texas suit, but was not a plaintiff in the New York case.

The Wall Street Journal said a settlement looked imminent, with the banks agreeing to fund the buyout at $36 a share -- significantly lower than the $39.20 called for in the deal.

The parties in the dispute declined to comment on the journal report.

New York State Supreme Court Judge Helen Freedman took the bench just before 10 a.m. and told a packed courtroom that the case would be adjourned until Tuesday morning, although gave no reason for the delay.

Stunned silence followed by the clicking of BlackBerrys swept through the courtroom. Arbitrage traders, who bet on the spread between a deal price and a company’s share price, have been scrutinizing every twist of the Clear Channel saga and packing courtroom hearings.

In Texas, a hearing on the banks’ motion to dismiss the litigation there was moved from Monday to Tuesday morning.

Later on Monday, Clear Channel confirmed that the delay in Texas was to allow the parties to continue settlement discussions that were "recently initiated". Sources earlier told Reuters that settlement talks were ongoing.

FINANCING TERMS

Central to the dispute was the hit the banks were going to take from funding the deal because of the less favourable lending conditions.

They had agreed to provide $22.1 billion financing to fund the deal for fees of $400 million, but according to the original suit filed by Bain and THL, the banks feared they would lose $2.7 billion after the market worsened.

Bain and Lee argued the banks tried to renegotiate the financing from long-term to a short-term package and tried changing the terms so it would be unworkable, in order to kill the deal.

The banks have argued that the two sides were in talks when the buyers’ sued, which constrained further discussions.

Monday’s events are the latest twist in the battle for Clear Channel since it announced in October 2006 that it had hired Goldman Sachs Group to help it evaluate strategic alternatives. Bain and THL beat out a rival consortium made up of Providence Equity Partners, Blackstone Group and Kohlberg Kravis Roberts and Co to buy Clear Channel for $37.60 a share.

But the winning bid ran into trouble when a small number of large shareholders said it undervalued the company. The buyout firms then offered $39, and later $39.20.

Barrington Research analyst James Goss said Clear Channel’s operations had suffered from the rough advertising environment, but added that the company was in a better position than when it first agreed to the buyout.

"It sold the television group and a number of radio stations," he said. "It has refined its focus."

(Additional reporting by Martha Graybow in New York; Editing by Lisa Von Ahn and Tim Dobbyn)