NEW YORK/PHILADELPHIA (Reuters) - Spats over the last remaining leveraged takeovers forged during the private equity boom have mostly been resolved, but Wall Street banks, buyout firms and the companies they target have been left more than a little bruised.

A crucial issue for future deals is private equity firms, banks and buyers finding ways to protect themselves and ensure others can't easily pull out of deals or litigate.

But some of the trust that once existed between major parties in the business is now in doubt.

It seems every banker, lawyer and private equity executive has a war story about deals that have been scuttled, delayed or revamped in the past year.

The private equity buyers are facing up to the idea that they probably overpaid during their zealous shopping sprees for companies in 2006-2007. Some of these investments may now run into trouble in an economic downturn which could be ugly and prolonged, especially given how debt-laden many are following the leveraged takeovers.

The Wall Street banks that financed the deals, meanwhile, had to write down billions in leveraged loans after getting stuck with debt they had trouble syndicating. They may be on the hook for more if companies in deals they financed fail to produce enough cash flow to pay off the debts and need restructuring.

For the shareholders of the companies where takeover-financing collapsed, the situation is already grim as share prices remain well below the original price of the deals.

"Private equity firms, by and large, have come out quite nicely, the banks have taken some hits and overall the sellers came out worse," said Joel Greenberg, partner and co-chair of law firm Kaye Scholer LLP's Corporate and Finance Department.

Deals which collapsed since the global credit crunch set in last year include audio equipment maker Harman International Industries Inc , equipment renter United Rentals Inc and student lender Sallie Mae, formally known as SLM Corp . On Thursday, Penn National Gaming Inc said its $6.1 billion takeover had been terminated.

LBOs that have yet to close include Huntsman Corp and Puget Energy Inc according to FactSet MergerMetrics.

The deal between Huntsman and its buyers, Apollo Management and its Hexion Specialty Chemicals affiliate, remains locked in a legal battle. Apollo and Hexion have filed lawsuits to try to limit their liability if the deal collapses, while Huntsman has sued for breach of contract, defamation and other charges.

REVAMPED OR EVAPORATED

A few companies managed to renegotiate terms rather than abandon deals, such as the buyouts of Clear Channel Communications and Canadian telecoms giant BCE Inc. , which agreed a new deal on Friday.

"Boards never really thought they were signing up for a deal that could just evaporate," said Marilyn Sonnie, partner at law firm Jones Day. "But a lot of them did."

Behind the scenes of the buyout boom fallout were tough negotiations between private equity buyers and the banks as both sides tried to salvage the best outcome for themselves.

One of the buyers of BCE, Providence Equity Partners' Chief Executive Jonathan Nelson, said in June that he had been involved in some stressful, high profile, high stakes deals in the past year, stressing each bank had handled the situation differently.

"Those that handled it well -- we won't forget that; we will respond in kind when we have a chance," he said at the time. "That speaks to relationships. Those that have stood by us, we would be eager to respond in kind."

The $17.9 billion Clear Channel deal was one of the most high profile LBO disputes as the private equity buyers and Clear Channel sued the banks to complete the deal. The litigation was eventually settled in a way that allowed the buyout to complete.

In the BCE deal, the private equity buyers and the banks had asked BCE to delay the deal's close, while in exchange, BCE got to preserve the original deal price, a source brief on the matter said.

The delay, however, essentially reduces the price for the buyers as BCE won't pay quarterly dividends, the source said, while the banks financing the deal got a better interest rate.

"In BCE - the big adjustments came out of the company," said Greenberg, arguing it was similar to the Clear Channel case. "The private equity companies improved terms a little but the big losers are the shareholders in the target -- although they would have been bigger losers if the deal fell apart."

Leveraged buyouts have a lower rate of completion than typical acquisitions, according to FactSet MergerMetrics. Last year, about 11 percent of U.S. public company deals with definitive merger agreements failed to close, compared with a failure rate of 21.5 percent of LBOs with definitive agreement.

TRUST ME

One fact in everyone's favor is that the whole industry was clobbered by the downturn.

"If it had just been one private equity firm backing out of deals, that might have been different," said Sonnie. "Private equity firms, you would think, wouldn't risk the reputational scar. But you had a lot of firms and a lot of deals in trouble."

Joseph Frumkin, a partner with Sullivan & Cromwell LLP in New York argued that in the future, sellers would try to get more deal certainty, and buyers would look for more secure financing commitments so they don't get into situation where banks balk when it comes time to write the checks.

Banks, meanwhile, may become more strict about adding protections that allow them to walk away from a deal if the loan syndication market changes.

During the height of the LBO boom, banks were competing to finance deals and abandoned many of the protections that had been routine in the past.

"The financing sources will look for more clear walk-aways -- which is counter to the desires of the private equity firms and sellers -- and triggers entitling them to walk away," Frumkin said. "They had that until fairly late into this last cycle."

Another important issue is how each side negotiates the Material Adverse Change (MAC) clause. Such a provision allows a buyer to wiggle out of a deal if the company they are buying suffers a major change in its finances.

"It's really hard for a company to fight a MAC charge," said Sonnie. "If a buyer is asserting that a MAC occurred -- even if it hasn't -- all of the company's problems get aired out publicly."

With the massive debt overhang that clogged up banks' pipelines mostly whittled away, private equity firms are more optimistic about getting new deals financed. Still, no one expects the mega-buyout boom to return anytime soon.

Trust will have to return between the parties.

"They need each other," said Greenberg. "Private equity can't do deals without banks and the banks make so much money off them when they go right."

(Reporting by Megan Davies and Jessica Hall; Editing by Kim Coghill)

(For more M&A news and our DealZone blog, go to http://www.reuters.com/investing/news/mergers)

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