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Samuel Maizel, bankruptcy attorney with Dentons’ Restructuring, Insolvency and Bankruptcy Group, center, walks toward the United States Bankruptcy Court for the Eastern District of Washington on Thursday in Yakima. Maizel and his team represent Astria Health.

A federal bankruptcy court judge ruled Thursday that Astria Health could obtain an additional $8 million in debtor-in-possession financing.

When Sunnyside-based Astria Health filed for bankruptcy in early May, it revealed plans to secure $36 million from JMB Capital Partners to stabilize its finances while it went through bankruptcy.

Judge Frank Kurtz approved

$28 million of that amount

just days after the bankruptcy filing. Astria used the funds to help cover payroll as well as pay off more than $21 million it owed to two secured lenders, Banner Bank, and MidCap Lenders.

“We are pleased with today’s decision. It is another important step in our efforts to reorganize our debts and emerge from this process,” said John Gallagher, Astria Health’s president and CEO in an emailed statement Thursday. “We have every confidence that we will be able to continue to grow and provide health care that is locally based.”

Thursday’s ruling hinged on whether Lapis Advisers, Astria Health’s largest creditor, would have adequate protection with the new debt Astria Health was accumulating through the debtor-in-possession financing.

Lapis Advisers, which loaned Astria $44.5 million, was concerned its financial interests wouldn’t be protected if something went wrong with Astria Health’s plan to emerge from bankruptcy. To that end, Lapis Advisers requested additional provisions to ensure adequate protection, such as monthly payments.

Astria Health has maintained that issues collecting revenue caused cash flow issues that led it to file for bankruptcy. They believe with a new vendor, they will be able to resolve that issue and emerge from bankruptcy by year’s end.

Astria Health officials said during the hearing that they had made progress on revenue collection efforts, though it was not entirely consistent.

Astria Health is not pursuing other options, such as a sale of its assets.

“There’s always someone’s ox that is being gored, and Lapis is the one being placed at risk in these cases,” Ian Hammel, attorney for Lapis Advisers, said during the hearing.

Astria Health maintained that Lapis was protected by having a sufficient equity position in Astria’s assets. Michael Lane, Astria Health’s chief restructuring officer, estimated those assets at more than $100 million.

Lapis countered by stating that Astria Health may not realize full value if there ends up being a sale.

Kurtz, in his ruling, said he was not going to determine the precise value of Astria Health’s assets. But based on testimony, he believed Astria Health demonstrated there was enough equity that would protect Lapis’s financial position.

Kurtz also addressed Lapis’s continued push for other options, such as a sale or partnering with another health care institution. Kurtz said that while he shares concerns about Astria Health’s prospects and while a broad-based bankruptcy plan would be desirable, his ruling is based on the plan in place.

“They’ve come forward with a plan,” Kurtz said. “The assumption is that we should listen to them and be guided by their proposal for reorganization.”

The judge also declined Lapis’s request for monthly payments.

Astria to drop motion on sealing record

Astria’s attorneys also said they plan to drop a motion to seal court records on executive compensation. Attorneys said they’re working on a stipulation where involved parties, including creditors and the U.S. trustee for the Astria case, would receive compensation information but it would remain confidential otherwise.

Astria Health, in its motion, voiced concerns that if it were forced to disclose compensation information it would create negative morale among executives and Astria Health employees and enable competitors to poach senior management.

Reach Mai Hoang at maihoang@yakimaherald.com or Twitter @maiphoang