AUBURN - Auburn Memorial Hospital is close to emerging out of Chapter 11 Bankruptcy nearly a year after entering it.

Today, AMH submitted a proposed Joint Plan of Reorganization and Disclosure Statement to the U.S. Bankruptcy Court for the Northern District of New York, a key step in concluding bankruptcy proceedings that began last April 24.

Under the proposed plan, all secured mortgage lenders would be paid in full, President and Chief Executive Officer Scott Berlucchi said. AMH currently has mortgages on the hospital, the Finger Lakes Center for Living and Finger Lakes Medical Care Center on Grant Avenue.

There will be no employee layoffs and all eligible employees and retirees would receive their accrued pension benefits. Additionally, it is expected that unsecured creditors would be paid approximately 7 percent - or seven cents on the dollar - of their allowed bankruptcy claim.

“By resolving this long-standing issue we can put the long-standing debts behind us,” Berlucchi said during a meeting with reporters Tuesday. “Profits that we do make get reinvested by way of new technology, new lab equipment, new radiology equipment, new programs, new services, recruitment of new doctors. This is a key strategy for our short and long term success here in Auburn.”

AMH creditors can vote to accept or reject the plan following a formal hearing from the bankruptcy court, he said. If creditors accept the plan, the court will conduct a confirmation hearing during which a date for implementation will be established. Berlucchi expects this process to take between 90 and 120 days.

An in-person meeting announcing the filing to reporters included Berlucchi, Chief Financial Officer John Baran and Beverly Miller, director of community relations and the Hospital Foundation of Auburn Memorial Hospital.

The announcement comes nearly a month after Berlucchi gave the first-ever State of the Hospital address during which he presented a bright and optimistic picture of AMH's future.

The not-for-profit hospital posted $1 million in gains in 2007 and is currently $1 million in the black after the first three months of 2008, he said.

The hospital is also underway on several capital projects for which they received a $4.4 million matching state grant and is actively recruiting new physicians and surgeons for specialized fields.

Despite the sunny financial outlook, Berlucchi said the 7 percent payback “represents what the hospital can afford and ensures the future financial health of Auburn Memorial Hospital.”

Baran said most of the local businesses impacted are understanding of the situation.

“Yes, there are local vendors that are probably going to receive seven cents on that old debt, but they understand though that it is in their best interest to have a strong viable hospital here they can do future business with,” he said. “They are business people. They understand this happens every once in a while. The past is the past and what we are trying to do is move forward for the future.

“There is going to be some number, I would suspect, who believe the payout could be higher,” he later added. “But our position is that we need the future profits and the cash it generates, we need that to reinvest into this facility so it remains strong and viable.”

Martin G. Bunin, a partner at the Alston & Bird law firm in New York City, represents the committee of unsecured creditors in the bankruptcy case.

The committee previously made a counter proposal on the payback percentage and was hoping to negotiate a higher amount, he said, but would not disclose the terms of the counter proposal.

This current plan, Bunin said, “is unacceptable to the creditor's committee.” He said that creditors will likely oppose the plan if AMH moves forward.

According to Jack Williams, resident scholar at the American Bankruptcy Institute and bankruptcy professor at Georgia State University College of Law, 7 percent payback is on the low end of the spectrum, but within the range of distributions for a not-for-profit.

“I've seen as high as 100 cents on the dollar,” he said. “But most of the time they come in for non-profits at 20 to 30 cents on the dollar. That is the most typical distribution. Seven percent is not unheard of; I've seen 6 percent, but it's certainly on the low end you would expect on distribution.”

Williams said he would expect a series of negotiations between the creditors, the hospital and the financial institution to take place in the coming months. In such negotiations he has seen, he said compromises have been made from 15 to 20 cents on the dollar.

“I don't see it at 30 cents, but I have a hard time seeing it under 10 cents on the dollar,” he said.

In April 2007, AMH purchased $2,508.70 worth of ice melt salt from Butler's Sales and Servicing, Inc. in Auburn and have not been able to pay for it.

“Seven percent is not a lot,” owner Mike Butler said. “I think they could do a lot better.”

Butler has continued to do business with AMH despite the debt, he said.

“The past is the past,” he said. “We have a good working relationship with them. As long as they stay under protection I know I will get my money. Hopefully we will be doing business with them in the future.”

Berlucchi said this turn-around year has changed the overall perception of the hospital, from both employees as well as community members.

“What I'm hearing from the staff is that they are very enlightened, the morale is at an all-time high,” he said. “It's an engaged staff because there was just an awful lot of things that led up to this and I think being a part of the staff for the last seven years, up until this last year, was very difficult.”

He said employees understood what the hospital was trying to do by filing for Chapter 11 bankruptcy after it was explained to them, and they accepted it.

“Now they are on the winning team,” he said. “They were suspect at first, but now a small victory.”

Staff writer Alyssa Sunkin can be reached at 253-5311 ext. 239 or alyssa.sunkin@lee.net