North Star Health Alliance, Inc. and three affiliated debtors asked the United States Bankruptcy Court for the Northern District of New York to approve up to $60 million in debtor-in-possession financing from the Dormitory Authority of the State of New York. The motion, filed May 18, 2026 as Docket No. 308, was set for an interim hearing on May 20, 2026.

The Debtors operate a rural not-for-profit health system in the North Country: two critical access hospital campuses, a standalone inpatient psychiatric hospital, and a 60-bed assisted living facility, together employing roughly 1,200 people. The proposed facility does two things at once. It refinances a $15 million state bridge loan that has kept the system solvent since the petition date, and it funds operations through the end of 2026 while the Debtors pursue a partnership under New York's Safety Net Transformation Program. The motion is direct about the alternative: absent the financing, the Debtors represent that they would exhaust their cash and close, leaving two large counties without local essential care.

North Star Health Alliance was established in September 1993 as a New York not-for-profit corporation. It functions as a passive umbrella organization rather than an operating company, coordinating governance, strategy, and shared services across its members. Those functions include finance, human resources, information technology, compliance, revenue cycle coordination, and cash planning. The motion describes North Star as a platform for alignment that does not itself exercise financial control over each member.

The system's three operating members each carry a distinct license and patient population.

Carthage holds a single Department of Health operating certificate covering both 25-bed campuses. The Ogdensburg location, referred to in the filing as the Claxton Campus, is the area's designated "9.39" hospital. The motion notes that while the Department of Health issued the operating certificate reflecting this configuration, the Centers for Medicare and Medicaid Services processes to recognize and operationalize the Claxton Campus as a critical access hospital remained underway as of the filing date.

Claxton-Hepburn Medical Center now operates exclusively as a standalone Article 31 inpatient psychiatric hospital licensed by the New York State Office of Mental Health. The filing identifies its child and adolescent unit as the region's only acute inpatient behavioral health unit dedicated to that population. Meadowbrook Terrace rounds out the care continuum, supporting safe discharge planning and community-based care for seniors and medically fragile patients.

Beginning in or about August 2022, North Star pursued a coordinated transition the filing calls the Transformation Plan. The stated goal was to preserve access to acute care and behavioral health services in the North Country while addressing what the motion describes as Claxton's unsustainable legacy cost and reimbursement structure as a Sole Community Hospital. The plan ran through the Department of Health and the Office of Mental Health and proceeded in regulatory steps, culminating in the October 2024 reorganization of Claxton into two distinct operations.

As of the petition date, the motion represents, the system was operating on revenue from governmental payers and Department of Health funding tied to the Transformation Plan. After the filing, the Department pre-funded certain Medicaid and Medicare receivables under a Vital Access Provider Assurance Program agreement dated March 27, 2026, providing the $15 million bridge across thirteen weeks. The filing states that without those advances the Debtors would have run out of cash. Because the Department retains recoupment rights against all future Medicare and Medicaid reimbursements payable to the Debtors, the motion characterizes the Department as effectively fully secured on that advance.

The Debtors seek authority to enter into a Senior Secured Priming and Superpriority Debtor-In-Possession Credit Agreement with DASNY, acting as administrator of funds available through the Health Facility Restructuring Pool established under Section 2815 of the New York Public Health Law. Carthage Area Hospital would serve as borrower, with North Star, Claxton, and Meadowbrook as guarantors.

The first dollars advanced would repay the $15 million state bridge loan in full through the interest-free tranche. Repaying that advance is a condition of the DIP Loan, and the motion explains the logic: absent repayment, the Department of Health could recoup against incoming Medicare and Medicaid reimbursements, draining the new facility as quickly as it funded operations. Converting the advance into an interest-free DIP tranche, the filing argues, removes that pressure on cash flow. Remaining proceeds would fund working capital, operating expenses, capital expenditures, retained professional fees, and the Authority's own fees and advisor costs, all in accordance with the budget. The agreement provides that proceeds may not be transferred to or used by any entity other than the borrowing hospital.

Both before and after the petition date, the Debtors contacted fifteen potential lenders and shared diligence materials, including proposed budgets and projections. The motion represents that every lender would have required priming liens under Section 364(d) as a condition of any financing, and that DASNY was the only party with which the Debtors could reach agreement within the time the circumstances allowed.

The filing anticipates the obvious objection. Section 364(d) does not require a debtor to seek financing from every possible lender before concluding that better terms are unavailable; it requires a reasonable effort. Citing decisions from the Southern District of New York and elsewhere, the Debtors contend that approaching fifteen parties clears that bar, particularly where few lenders can realistically extend credit to a distressed rural hospital system on a priming basis.

Under the proposed interim order, DASNY would receive first-priority priming liens under Section 364(d) on substantially all of the Debtors' encumbered real and personal property, and liens under Section 364(c)(2) on any unencumbered property. The DIP obligations would also carry superpriority administrative expense status under Section 364(c)(1), ranking ahead of other administrative claims in the cases, subject only to the carve-out. The proposed order excludes avoidance actions from the DIP collateral.

The order builds in several lender protections that are common in priming facilities but worth noting in combination. The liens would be deemed valid, binding, enforceable, and perfected on entry of the interim order, without UCC-1 filings or other perfection steps. The Debtors and their affiliates would irrevocably waive any right to seek or grant liens of equal or greater priority on the collateral while the DIP obligations remain outstanding. No costs of administration could be charged against the lender or its collateral under Sections 105, 506(c), or 552(b) without consent. DASNY would retain unimpaired credit-bid rights and qualified-bidder status in any sale under Section 363, 1129, or 725. And the DIP obligations would survive plan confirmation rather than being discharged, with the Debtors waiving discharge under Section 1141(d)(4).

The Carve-Out

The carve-out preserves a defined pool ahead of the DIP claims. It covers all fees owed to the Clerk of the Court, up to $50,000 for fees and disbursements of a Chapter 7 trustee, and unpaid accrued professional fees up to the lesser of $500,000 or the amount budgeted for that purpose. A trigger mechanism tied to a declared event of default governs how much of the professional-fee allowance survives once the lender begins to exercise remedies, capping post-trigger professional expenses at the lesser of $500,000 or the sum of pre-trigger unpaid amounts plus $50,000 of post-trigger amounts.

The Debtors' budget, filed as Exhibit 3 and built on actual cash flow through May 8, 2026, quantifies the need. On a baseline basis, with no DIP financing, the system's ending cash position falls from a deficit of roughly $1.8 million in May 2026 to a deficit of approximately $53.6 million by December 2026. The decline is steady through the summer and steepens into the fall.

The projection then layers in the moving pieces that drive the actual financing requirement. Projected revenue cycle enhancements add $10.7 million and restructuring initiatives add $15.6 million. Those gains are more than offset by the $15 million bridge-loan repayment scheduled for June, $10.7 million in bankruptcy costs, $5.5 million in post-petition accounts payable, and $0.6 million in capital spending. Netted against the baseline, the adjustments deepen the position by $5.5 million, producing a revised DIP cash need of approximately $59.1 million through December 2026.

The Debtors' prepetition secured creditors are Northern Credit Union and M&T Bank. The motion represents that ample equity supports priming both. It estimates real estate value at approximately $50 million and accounts receivable in excess of $100 million, and argues that the resulting equity cushion, more robust still when enterprise value is considered, provides adequate protection for the existing lienholders even as DASNY primes them.

Subject to DASNY's approval of how loan proceeds are used, the Debtors state they are prepared to consider additional adequate protection for Northern Credit Union and M&T Bank, including increases to existing payments and junior liens on other property.

The financing is tied to forward progress on a restructuring partnership. The DIP agreement conditions continued access on a set of case milestones keyed to New York's Safety Net Transformation Program, which the Department of Health operates. Missing any of these milestones is an event of default.

The motion states that the Debtors are already implementing an arrangement with a healthcare partner under the program as part of the Chapter 11 process. The structure ties the lender's continued funding to the same regulatory pathway the state is using to keep care in the North Country, aligning the financing with the program that the Debtors expect will carry the system out of bankruptcy.

Beyond the milestones, the agreement imposes a reporting regime designed to give the Department of Health and DASNY close visibility into the system's finances. The Debtors would deliver weekly cash flow forecasts and weekly updates from their financial advisor, quarterly reports within 45 days of each quarter's end, monthly utilization statistics and interim financial statements within 30 days of month end, and audited annual financial statements within 180 days of fiscal year end. Each report must tie expenditures to the approved budget and describe progress toward the restructuring goals.

Advances after the initial funding require irrevocable written notice at least ten business days ahead, and no advance is available while an event of default exists or a representation is materially untrue. Events of default include failure to make payments when due, failure to maintain enforceable collateral and guaranties, material breach of covenants or representations, dismissal or conversion of the cases, appointment of a Chapter 11 trustee, and failure to comply with the final order. On a default and the expiration of any cure period, the automatic stay terminates and DASNY may exercise its rights and remedies without further order of the court. The proposed order also asks the court to find that the lender extended the financing in good faith and is entitled to the protections of Section 364(e).