A bankruptcy judge approved a deal between Capmark Financial Group Inc. and Merrill Lynch's derivatives unit that allows the commercial lender to revamp its business of managing funds for investors in residential properties that qualified for low-income-housing tax credits.

Judge Christopher S. Sontchi of the U.S. Bankruptcy Court in Wilmington, Del., signed off on the settlement between the two firms Wednesday that resolves more than $119 million in claims Merrill Lynch had filed against Capmark as a result of Capmark's bankruptcy.

The settlement involves a restructuring of low-income-housing investment deals between Capmark, Merrill Lynch and outside investors. The agreement transfers Capmark's stake in the business to a new bankruptcy remote vehicle, which will effectively step into Capmark's shoes and assume its obligations with respect to Merrill Lynch, now a unit of Bank of America Corp.

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