Bankruptcy Judge Prudence Carter Beatty signed off on a settlement allowing a group of certificate purchasers to collect millions of dollars worth of claims against Solutia in its chapter 11 case, Bankruptcy Law360 reported yesterday. Judge Beatty granted Solutia’s deal with the purchasers, including units of AIG and Credit Suisse, to have a secured claim of $20 million and a general unsecured claim of more than $27.3 million against the St. Louis, Mo.-based chemical company. The settlement resolves a dispute stemming from a pre-petition financing deal over Solutia’s corporate headquarters. Judge Beatty said that the claims were not subject to objection or disallowance, and agreed the claims should be allocated among AIG Annuity Insurance Co. and American General Life Insurance Co., Credit Suisse Securities LLC and Latigo Master Fund Ltd.

The private equity firm that owned a controlling interest in failed commodities brokerage Refco Inc. has filed a $245 million lawsuit against Mayer, Brown, Rowe & Maw, accusing the law firm of helping to conceal transactions that led to Refco’s collapse, the New York Law Journal reported today.  Boston-based buyout firm Thomas H. Lee Partners filed a 50-page complaint against Mayer Brown Thursday in federal court in Manhattan (07 Civ. 6767). In the suit, Lee said Mayer Brown handled 17 fraudulent transactions at the behest of Refco’s executives between 2000 and 2005. Lee is seeking at least $245 million on claims of securities fraud, common law fraud and negligent misrepresentation. Lee is also charging violation of the Racketeer Influenced and Corrupt Organization Act. A successful RICO claim would entitle Lee to treble damages.

Stock prices tumbled on Wall Street and across much of the rest of the world yesterday, driven sharply lower by worries over slowing economic growth in the United States and worsening borrowing conditions that could make everything from huge corporate buyouts to buying a new home more difficult, the New York Times reported today. It was the worst one-day decline on Wall Street since markets plunged worldwide in late February after an investing scare in Shanghai, and it occurred amid the biggest volume of trading on the New York Stock Exchange in five years. Meanwhile, there are various signs of weakness in the American economy and new difficulties in borrowing for many homeowners and companies that are highly leveraged or have poor credit. With the growing distress in credit markets, securities backed by risky mortgages have been a top concern. They are held by pension funds, hedge funds and many other investors around the world. Until recently, most policy makers and analysts argued that even if the market for those bonds collapsed, no major firm was likely to be seriously injured. However, banks now find themselves taking on more loans because they had promised to do so if the loans could not be sold and the market for some types of securities has all but vanished.

Liquidating retailer Tweeter Home Entertainment Group is scrapping its executive bankruptcy bonus program and apologizing to workers for a failed attempt to pay severance benefits, the Associated Press reported yesterday. Tweeter Chief Financial Officer Gregory Hunt said the company decided to abandon plans to pay bonuses to top-ranking executives when results of a bankruptcy sale brought disappointing results. He said that the aborted severance program was a good-faith effort that foundered along with Tweeter’s hopes for an out-of-court restructuring. The Canton, Mass., company filed for chapter 11 in Delaware in June and this month sold its remaining assets to Schultze Asset Management for $38 million. The court-approved deal is not expected to leave creditors with much of a recovery as Tweeter owed creditors about $165 million when it sought chapter 11 protection.

Chrysler’s attempt to tap debt markets for $20 billion hit a critical juncture as bankers began discussing the likelihood that they will have to step up with a large part of the money because investor demand hasn’t been strong enough, the Wall Street Journal reported today. It’s an especially sensitive time because Chrysler and its Detroit counterparts are kicking off contract negotiations with the United Auto Workers. Chrysler Group is being acquired from DaimlerChrysler AG by New York hedge fund Cerberus Capital Management. The $20 billion will be used to fund Chrysler’s auto operation and its finance unit after it is separated from Daimler in the coming days. Chrysler’s bankers — including J.P. Morgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Bear Stearns Cos. and Morgan Stanley — have spent the past month trying to convince investors to buy $12 billion in loans for Chrysler’s auto business and $8 billion in loans for its financial arm. The underwriters of the debt sale were yesterday discussing plans to take a half or more of a $10 billion piece of the Chrysler auto loan.

Unsecured creditors in the Tower Records bankruptcy have lashed out at the company’s liquidation plan, saying that it prohibits general unsecured creditors from providing any input into how the company litigates pending trade vendor claims, Bankruptcy Law360 reported on Friday. The creditors’ recovery is likely to be most affected by the trade vendor litigation, but the plan does not provide a representative party that can take over in overseeing the case when the official committee is dissolved, the committee said. “Notwithstanding the purported need for an independent person to ‘decide’ all of these issues, the general unsecured creditors are the only constituency which will be completely disenfranchised by this process,” it said. The court order approving Tower Records’ plan allows for objections from interested parties to be filed through July 25. A confirmation hearing on the plan is scheduled to begin on July 31.

Financially troubled Tyrone Hospital in State College, Pa., was ordered earlier this year to file a financial disclosure and reorganization plan in federal bankruptcy court by July 15, StateCollege.com reported today. However, the hospital failed to meet the court’s deadline, and a judge is now threatening to impose involuntary chapter 7. The attorney handling the hospital’s bankruptcy proceedings said that the appropriate paperwork will be filed within a few days, well in advance of the new deadline of August 9. In January, Tyrone Hospital’s CEO stated that the facility’s best option for long-term success was to affiliate itself with a larger medical organization. Hospital officials have been in discussions with representatives of the Altoona Regional Health System regarding a potential merger, which would provide the funds needed to upgrade the Tyrone facility.

A large number of defendants sued by the Enron Creditors Recovery Corp. over commercial paper transactions leading up to the defunct energy company’s collapse in 2001 have agreed to pay more than $149 million to settle the charges against them, Bankruptcy Law360 reported yesterday. The settling defendants include Lehman Commercial Paper Inc., Aetna Inc., Allstate Life Insurance Co., Merrill Lynch Investment Managers LP, Prudential Life Insurance Company of America and UBS Global Asset Management (Americas) Inc. Enron’s motion says that between Oct. 26, 2001, and Nov. 6, 2001, Enron paid more than $1 billion on commercial paper prior to those securities reaching maturity. Enron filed for bankruptcy protection on Dec. 2, 2001. In November 2003, Enron launched two adversary suits against about 180 parties over these payments looking to recover hundreds of millions of dollars, and “asserting claims for avoidance and recovery of allegedly preferential or constructively fraudulent transfers in connection with the transactions, and seeking disallowance of defendants’ claims against Enron,” said Tuesday’s motion.

Bankrupt subprime lender People’s Choice Home Loan Inc. has received bankruptcy court approval to sell its single-family residential mortgage loan platforms to UBS AG for $2.5 million, allowing the liquidating lender to continue its plan to divest its assets, Bankruptcy Law360 reported yesterday. People’s Choice filed its motion to sell its origination and servicing platforms to UBS on July 3. Since filing for bankruptcy earlier this year, People’s Choice has been offering up its assets for sale. In May, Bankruptcy Judge Robert Kwan approved the sale of the company’s subservicing rights and residual interests in seven securitized trusts to Equity One Inc.

After facing numerous objections to its chapter 11 plan, bankrupt auto parts maker Collins & Aikman Corp. has asked the court to overrule remaining objections and approve its amended plan at a hearing scheduled for Thursday, Bankruptcy Law360 reported yesterday. The plan, the product of two years of negotiation with creditors, is supported by the pre-petition lenders’ steering committee, the creditors’ committee and major customers, the company said. Bankruptcy Judge Steven Rhodes approved the company’s disclosure statement in January, allowing Collins & Aikman to solicit votes for the plan. The solicitation process began in February, and since that time, Collins & Aikman’s plan received a number of objections. The company on Monday said that a number of those had been resolved, including one lodged by the U.S. Trustee.