A federal bankruptcy judge on Friday approved the reorganization plan for the parent company of Madison-based AnchorBank.
Anchor BanCorp Wisconsin filed for Chapter 11 reorganization earlier this month, asking a judge to clear the way for a deal that would erase its debts and raise $175 million in new investment capital.
A company statement said the judge approved its plan, although some conditions must still be met, including getting regulatory approval.
"This was an important step for AnchorBank to move forward with its recapitalization effort," said Chris Bauer, AnchorBank President and CEO. "We still have work to do, but we are pleased to have this milestone behind us."
Jennifer Ranville, a spokeswoman for the company, said regulatory approval from the Federal Reserve was expected any day.
Bauer also said the reorganization only affects the parent company, and that AnchorBank will continue to operate as usual.
Anchor BanCorp filed for bankruptcy after rival Associated Bank rejected a deal to settle its debt.
Three banks loaned $116 million to Anchor BanCorp in 2008, and the debt grew to more than $180 million with interest. Anchor BanCorp had proposed a deal in which US Bank, Bank of America Corp. and Associated Bank would be paid back a total of $49 million.
US Bank, which was owed $100 million, and Bank of America, which was owed $54 million, agreed to the deal. But Associated Bank, which was owed $32 million, voted against it. The loan came due on June 30.
While the lenders approved an extension, the Federal Reserve Bank did not, forcing Anchor BanCorp into bankruptcy.