Back on May 17, 2007, there was another typical multi-billion dollar private equity deal. That is, The Blackstone Group L.P. (NYSE: BX) agreed to pay $81.75 per share -- a total of $7.8 billion -- for Alliance Data Systems Corporation (NYSE: ADS).

In the press release, Chip Schorr, a Senior Managing Director at Blackstone, proclaimed: "We are excited about the opportunity to work together with management and with Alliance Data's dedicated employees to help continue to grow the business and further strengthen the company's competitive position."

Well, now the deal is in shambles, with ADS's stock price trading at a lowly $41.40. This week, Blackstone indicated that it is having troubles getting regulatory approval from the Office of the Comptroller of Currency (OCC), which wants Blackstone to provide a $400 million backstop of support (in the event there is a problem with the banking segment).

But for the folks at ADS, they think this is a ruse. As a result, the company has filed a lawsuit (you can find the complaint at the SEC website).

According to the complaint: "After the parties signed the Agreement, however, a liquidity crunch developed in the credit markets and the stock market declined, making the Transaction less attractive to Blackstone and more expensive to finance. Inconvenient timing, however, is not a permissible basis on which Blackstone can walk away from its deal."

Essentially, ADS claims that the OCC's requirements are not unreasonable and that Blackstone is not making sufficient efforts.

From the complaint: "The Blackstone Group, as one of the country's largest and most sophisticated private equity groups, its affiliates, and their counsel of choice, Simpson Thacher & Bartlett LLP, knew or should have known at the time they negotiated the Agreement that the OCC would require a private equity group acquiring a bank through thinly-capitalized shell entities to provide such assurance for the Bank's safe ongoing operation. Thus, the OCC's requests were hardly unexpected, and could not credibly have come as a surprise to Blackstone."

As this goes to the Delaware Court, things are far from not clear-cut. Keep in mind that the merger agreement compels Blackstone to use "reasonable best efforts" with the OCC. Yes, that's kind of fuzzy.

But, by looking at the stock price of ADS, it looks like investors aren't too optimistic about the outcome.

Tom Taulli is the author of various books, including The Complete M&A Handbook. He also operates DealProfiles.com.