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A bankruptcy triggered by the high cost of cleaning up New Jersey's contaminated Passaic River inched forward with an agreement to finance Maxus Energy Corp.'s workout effort.

On Monday, Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington, Del., indicated he would approve an approximately $63 million bankruptcy financing package that was amended after creditors expressed concerns.

Heading into Monday's hearing, Maxus creditors warned the financing would give Maxus's parent and lender, YPF SA, Argentina's state-run oil company, too much power to force through a bankruptcy settlement that takes YPF off the hook for damages from the contamination of the Passaic River.

Maxus was one of dozens of companies tagged with blame for discharging hazardous substances into the river decades ago. A New Jersey state court has ruled that Maxus and an affiliate were responsible for dumping dioxin, a highly toxic chemical and suspected carcinogen, into the river in the 1950s and 1960s.

YPF and Maxus agreed to pay New Jersey $130 million to settle most of the pollution claims in 2013. Cleanup costs for an eight-mile area of the river range from $1 billion to $3.4 billion, according to the Environmental Protection Agency.

Maxus Energy filed for chapter 11 bankruptcy protection in June, hoping to cement a settlement with its parent for $130 million to cover its environmental obligations. In return, YPF would be released from legal claims Maxus may have against it in relation to the cleanup costs.

While the fight over Maxus' bankruptcy financing was resolved through agreements, the fight over the YPF settlement will continue in bankruptcy court. If Maxus and YPF prevail, the settlement will be incorporated in a chapter 11 exit plan.

YPF bought Maxus in 1995. Along with Maxus' oil fields, YPF also acquired the company's legal liabilities, including those growing out of the operation of a chemical plant along the river decades ago. A pesticide plant in Newark produced the Vietnam War-era defoliant Agent Orange and DDT before being shut down years ago.

Other companies have been called on to help fund the cleanup of the Passaic River, which was a major industrial artery with chemical, paint and other factories. A group of those companies occupies a seat on the official committee of unsecured creditors in Maxus' bankruptcy and is watching the proceeding intently, a lawyer for the group said.

Maxus' bankruptcy financing will cover continued cleanup work, an obligation YPF must meet. The controversial portion of the financing was a loan that will mostly be spent on professional fees of lawyers and advisers working to get the settlement approved, fees that could top $20 million.

Occidental Chemical Corp., the Occidental Petroleum Corp. chemical subsidiary that's also known as OxyChem, has been trying to hold YPF to account for a share of the cleanup costs. OxyChem lawyer Christopher Shore said the bankruptcy financing threatened to add to Maxus' financial problems, not relieve them.

Maxus is asking to borrow in bankruptcy more than it can repay, Mr. Shore said, a factor that effectively gives YPF a veto power over the wishes of other creditors.

The official committee of unsecured creditors was also concerned about the concentration of bargaining power in YPF's hands, said Adam Harris, lawyer for the group.

YPF agreed to limit its repayment rights under the loan to set the financing up for approval.

Patrick Fitzgerald contributed to this article.

Write to Peg Brickley at peg.brickley@wsj.com

(END) Dow Jones Newswires

August 15, 2016 21:25 ET (01:25 GMT)

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