Bankrupt lender Quality Home Loans asked the bankruptcy court to approve a settlement agreement with Countrywide Home Loans Inc. over mortgage loans purchased by Countrywide before Quality filed for chapter 11, Bankruptcy Law360 reported yesterday. Before it filed for bankruptcy, hard money lender Quality would frequently sell pools of loans to the highest bidder or use Countrywide to securitize a pool of loans using real estate mortgage investment conduits (REMICs).  In its motion for relief from the stay, Countrywide claimed that it had purchased mortgage loans from Quality “on a service-releasing basis,” meaning that Quality sold all the rights to the loans including the servicing rights. However, Quality agreed to continue servicing the loans for the interim. In return, Countrywide agreed to securitize the loans it purchased in mortgage-backed security offerings. Countrywide has completed one mortgage-backed security offering, but over $22 million of the securities remain to be sold, Quality Home Loans said.

Bankrupt power producer Calpine Corp. lowered an estimated return for existing shareholders under a revised disclosure statement filed yesterday at the U.S. Bankruptcy Court for the Southern District of New York, Reuters reported yesterday. The company puts its estimated enterprise value on leaving bankruptcy at between $19.2 billion and $21.3 billion with a midpoint of $20.3 billion. Judge Burton Lifland will hold a hearing on the disclosure statement today. The San Jose, Calif.-based company said that it expects to receive confirmation of its reorganization plan by the end of this year.

Home furnishings retailer Bombay Co. said yesterday that it has filed for bankruptcy protection, but will keep stores open as it continues to look for a buyer, the Associated Press reported yesterday. The company said it had secured a commitment for $115 million in debtor-in-possession financing from General Electric Capital Corp. and GE Canada Finance Holding Co. The Fort Worth, Texas-based company said it would continue to pay employees and suppliers and preserve workers’ benefits. It also said it would honor customers’ returns and exchanges.

The U.S. Securities and Exchange Commission defended a civil lawsuit on Tuesday against bankrupt Collins & Aikman and a number of its officers against the officers’ motions to dismiss allegations that they misrepresented Collins & Aikman’s income to defraud investors, Bankruptcy Law360 reported yesterday. The commission’s response targeted motions by former Collins & Aikman CEO David Stockman, former CFO Michael Stepp, former vice president of finance David Cosgrove, former director of financial analysis Paul Barnaba, and Elkin McCallum, a supplier for the company who also served on its board of directors and allegedly participated in the company’s securities fraud. The SEC said that its claims — which allege that Collins & Aikman officials had kept false record books and made willfully misleading statements to investors, violating anti-fraud provisions of the Securities Act — were particular enough to withstand a motion to dismiss.

UAW President Ron Gettelfinger has ended discussions with General Motors Corp. about creating a multibillion-dollar trust fund to manage retiree health care obligations for hundreds of thousands on Detroit auto workers, the Wall Street Journal reported today. Citing a several billion-dollar funding dispute with GM, Gettelfinger on Tuesday told the auto maker that he wanted to begin discussions on a new four-year contract that didn’t involve this fund, which has been a dominant goal for GM in these talks. The gap was said to be in excess of several billion dollars. The union could bring it back for discussion at a later time. All of Detroit’s auto makers are pushing to close what they estimate is a $25-$30 hourly labor cost gap with Asian automakers, and the creation of a union-run trust, called a Voluntary Employees Beneficiary Association, or VEBA, is seen by the companies as a way to close much of that gap.

Bankruptcy Judge Michael B. Kaplan confirmed the reorganization plan of Kara Homes Inc., enabling the once-leading builder to exit chapter 11 protection as a smaller company controlled by a Connecticut hedge fund and a New Jersey developer, the Associated Press reported yesterday. The judge also confirmed a supplemental plan giving control of a Kara development in Mount Arlington, N.J., to WCP Real Estate Strategies Fund. The main proposal calls for a partnership between hedge fund Plainfield Specialty Holdings II, developer Glen Fishman and San Diego buyout firm Del Mar Capital to invest about $12 million in a restructured Kara Homes. Of that investment, about $2.25 million is set aside for the builder’s unsecured creditors. They will also share in the recoveries from any lawsuits filed on their behalf by a liquidation trust.
See Chapter 7

Bankruptcy Court Judge Kathryn C. Ferguson rescheduled a hearing in the Congoleum Corp. case on a rival reorganization plan proposed by attorneys representing clients who have been exposed to asbestos in the firm’s products, Bankruptcy Law360 reported yesterday. The hearing, originally scheduled for last Thursday, was pushed back to Nov. 8th. That delay is yet another roadblock to the company’s push to emerge from bankruptcy protection this year. Congoleum faced another setback in May after a judge ruled that insurers are not required to fund the global asbestos settlement at the heart of the flooring manufacturer’s proposed bankruptcy plan. The company has said it hopes to file a new plan with the bankruptcy court later this year.
See Bankruptcy Philadelphia

Thornburg Mortgage, a jumbo-mortgage specialist that was forced to stop making new loans, has sold $500 million of convertible preferred stock to raise cash, Bloomberg News reported yesterday. Thornburg said that the proceeds would help the company, based in Santa Fe, N.M., resume making loans and buying mortgage-backed securities. The sale was completed four hours after it was announced. The transaction follows the Countrywide Financial Corporation’s sale of $2 billion of similar securities to Bank of America last week. Mortgage lenders like Countrywide and Thornburg are turning to costlier financing after being shut out of the short-term debt market. Thornburg had to sell more than a third of its mortgage assets this month to meet obligations it could not refinance.

See Bankruptcy Indianapolis