Auburn Memorial Hospital said it has cleared another major hurdle in its Chapter 11 bankruptcy turnaround, after it reached an agreement this week with unsecured creditors on how much money AMH would pay to them.

The agreement calls for AMH to pay back $12 million, or 29 cents on every dollar of unsecured debt, over six years. But the hospital could also pay back $6 million, or 14 cents on the dollar, if it can do so within three years.

The deal covers roughly $42 million in unsecured debts, the bulk of which is owed to the federal Pension Benefit Guaranty Corp., which had filed liens against the hospital after it had fallen behind on payments to employee retirement plans. Those plans have been terminated as part of the bankruptcy case.

The deal represents a substantial increase in the amount of money the hospital had proposed paying back in its original Chapter 11 reorganization plan. That proposal, filed in mid April, had called for paying back about 7 cents on the dollar.

When that plan was filed, a lawyer representing the committee of unsecured creditors in the case said he would opposed the plan if it stayed at that repayment level.

He could not be reached for comment Friday morning.

With the unsecured creditors on board, AMH officials are now optimistic that they can have their plan approved by the U.S. Bankruptcy Court in June, which would allowed the hospital to emerge from Chapter 11 by mid-July.

“This is a fair settlement that will be beneficial for all parties involved,” said John Barran, AMH's chief financial officer, in a press release. “We have continued to work with our vendors during the negotiations on these debts and we appreciate their support during this process.”

Mounting debts forced AMH to file for Chapter 11 protection in April 2007.

During that time, the nonprofit hospital has turned around its financial performance. After years of operating losses, AMH posted $1 million in gains in 2007, and figures for the first quarter of the year show even stronger growth.

Year-to-date operating gains reached $957,000, well above the $365,000 level at the same point in 2007. The hospital had budgeted for a $609,000 quarterly operating gain.

“We've made significant strides in turning around the hospital over the last year,” said Scott Berlucchi, hospital chief executive officer.

He also said the hospital continues to recruit new physicians to fill service gaps.