Cosmed Group: EtO Litigation, 363 Sales, and Chapter 7 Conversion

Cosmed Group, Inc. and affiliate Spicey Partners Real Estate Holdings, LLC filed for chapter 11 on November 14, 2024 in the U.S. Bankruptcy Court for the Southern District of Texas, Houston Division. The Rhode Island-based company provides sterilization and pasteurization services for medical device and agricultural customers, including work that relies on ethylene oxide (EtO). The filing followed hundreds of EtO personal injury suits and rising defense costs, which company counsel said had become unsustainable. The debtors pursued a court-supervised sale process funded by a priming DIP facility from Zimmer Inc.

Schedules listed assets of $10 million to $50 million and liabilities of $100 million to $500 million, with more than 200 creditors. Eight of the nine largest unsecured creditors were law firms tied to the EtO litigation. The company employed about 51 people at the time of the filing. The case moved into a section 363 sale process and later converted to chapter 7 after the asset transactions closed.

Debtor(s)	Cosmed Group, Inc. and Spicey Partners Real Estate Holdings, LLC (jointly administered).
Court	U.S. Bankruptcy Court, Southern District of Texas (Houston Division).
Case Number	24-90572
Judge	Hon. Christopher M. Lopez
Petition Date	November 14, 2024
Listed Assets	$10 million to $50 million
Listed Liabilities	$100 million to $500 million
Number of Creditors	200+
Employees	About 51
Prepetition Secured Debt	Approximately $6.73 million
DIP Facility	Up to $7.5 million priming DIP from Zimmer Inc.

Restructuring and Sale Process

Cosmed's chapter 11 strategy centered on court-approved financing and a sale process. The restructuring path combined cash collateral authority, a priming DIP facility, and staged asset sales that led to conversion to chapter 7 after the closings.

Cash collateral and DIP financing. The debtors sought authority to use cash collateral and obtained a priming DIP facility to support a sale process. The cash collateral order approved use of prepetition lenders' cash collateral under a budget, with a 15% aggregate variance threshold for operating disbursements. The adequate protection package included replacement liens on postpetition collateral, superpriority claims under sections 503(b) and 507(b), and monthly payments to the senior lender as amounts came due. The order also established a carve-out for U.S. Trustee fees, clerk fees, and capped trustee fees and expenses, along with allowed professional fees and expenses subject to carve-out limitations.

The cash collateral order required budget compliance and periodic reporting, and it incorporated stipulations on the amount of prepetition secured debt. The carve-out language specified that trustee fees and expenses were capped at $50,000 and excluded restructuring, sale, success, or transaction fees for investment bankers or financial advisors from the allowed professional fee carve-out.

DIP facility economics. The DIP facility provided up to $7.5 million in total financing, with $2.0 million available upon entry of the interim order and $5.5 million available after entry of the final order. Pricing included an 8.00% base rate payable in kind, a 1.5% commitment fee added to principal, and a 1.5% exit fee payable in cash at termination or payoff. Zimmer Inc. served as DIP lender and was described as a medical device manufacturer that relies on sterilization services for its products.

Lien package and priorities. The DIP orders granted superpriority administrative claim status and a layered lien package. The liens included first-priority liens on unencumbered assets, junior liens on assets subject to permitted prior liens, and priming first-priority liens on collateral securing the prepetition debt, with prepetition lender consent described in the filings. The final DIP order also excluded claims and causes of action against insiders or affiliates from DIP collateral.

The priming structure relied on consent by prepetition secured lenders and was paired with the adequate protection package in the cash collateral order. Filings stated the structure was required to fund operations and the sale process while protecting prepetition collateral positions.

Budget reporting and variance testing. The DIP term sheet required weekly variance reporting against an approved budget. The reporting package included line-item comparisons of actual receipts and disbursements to budget and narrative explanations for variances. The term sheet included a 15% disbursement variance test and a 50% cash receipts variance test, with testing periods and dates set out in the budget annexes. Filings describe a schedule that moved to weekly cadence in December 2024 and early January 2025, with continued weekly variance testing through the sale period.

Milestones and termination events. The DIP facility included milestones requiring a sale consummation by 120 days after the petition date and a liquidating plan consummation milestone. The orders treated a missed milestone as an event of default. Termination events included conversion to chapter 7, dismissal, failure to obtain a final order within the interim period, and other default triggers tied to notice and cure periods.

Sale process and asset disposition. The restructuring strategy used a section 363 sale process. The bid procedures order set a calendar for notice, objections, bid submission, an auction process, and a final sale hearing if competing bids emerged. Bidders were required to post a 5% cash deposit, with an exception for the credit bid portion of any bid, and stalking horse protections were capped at 3% of the stalking horse purchase price.

The bid procedures order also set deadlines for service of assumption and cure notices and for counterparties to object to proposed cure amounts or assumption and assignment. The order tied contract objections to the sale timetable and set procedures for assumption and assignment.

Vapos transaction. The first transaction covered the Linden, New Jersey assets. The sale order was entered on June 6, 2025 and the closing occurred on June 13, 2025. Court filings describe a package of assets that included purchase orders, licenses, supply agreements, equipment, and software, and the debtors reported that operations at the Linden facility ceased upon closing.

Lynx Medical Holdings transaction. The second transaction covered the Erie, Pennsylvania and Franklin, New Jersey assets. The sale order was entered on June 12, 2025 and the closing occurred on August 1, 2025. The order described a stated purchase price of $3.3 million, reduced by a $500,000 credit tied to a related cash purchase, leaving a net balance of $2.685 million. The order stated that no cash was paid at closing and that the balance was financed through a note payable to Zimmer with a 12-month term and 7% interest. The sale reduced DIP obligations by the amount of the note assumed by the purchaser.

Court filings describe the Lynx consideration as debt-financed rather than cash at closing, with the buyer assuming a portion of DIP obligations through the Zimmer note. The Vapos closing ended operations at the Linden facility, while the Lynx closing transferred the remaining medical sterilization assets and related contracts.

Section 363 findings. The Lynx sale order included free-and-clear findings under section 363(f), good faith purchaser protections under section 363(m), and assumption and assignment findings for assigned contracts and cure costs. The order also incorporated objection bar language for counterparties that did not timely object to cure or assumption terms.

Conversion to chapter 7. After the asset sales, the debtors moved to convert the case to chapter 7. The conversion motion cited a postpetition net loss of about $5.903 million through May 31, 2025 and cash of about $850,000 as of April 30, 2025 after escrowed amounts. The debtors also reported ongoing administrative expense accruals and loss of access to DIP financing. The motion stated that the remaining estate assets consisted primarily of litigation recoveries and insurance coverage disputes and requested conversion to chapter 7.

The conversion order set an effective conversion date of July 2, 2025 and established deadlines for final chapter 11 fee applications. The order also imposed turnover and reporting obligations under Bankruptcy Rule 1019 and applicable local rules. The amended conversion order later deferred effectiveness to five business days after the Lynx sale closing and provided that the chapter 7 trustee had no obligation to insure assets or perform other duties until the deferred effective date. The final report filed after conversion described contract and lease outcomes linked to the two sales, including rejection of remaining executory contracts and leases after the Lynx closing and remittances related to post-closing collections.

The post-conversion reporting also described the transfer of assets to the Vapos and Lynx purchasers, the treatment of remaining executory contracts, and the remaining estate assets held for administration by the chapter 7 trustee. Court filings described the remaining asset pool as primarily litigation recoveries and insurance claims for chapter 7 administration.

Key case timeline. The following milestones reflect the financing and sale process.

Business and Operations

Cosmed and predecessor companies provided pasteurization and sterilization services for more than forty years, with operations spanning medical device sterilization, agricultural commodity pasteurization, and related manufacturing and consulting services. Court filings describe three main business lines: contract sterilization and pasteurization for medical and agricultural customers, manufacturing of sterilization equipment and related technologies, and consulting and facility design services for companies operating their own sterilization processes. Cosmed used ethylene oxide, propylene oxide, steam, and dry-heat processes to sterilize medical devices and agricultural commodities such as herbs, spices, nuts, and grains.

Court filings describe sterilization and pasteurization of raw agricultural commodities and sterilization of medical products for third-party manufacturers. The filings also describe manufacturing shops that supported the build and maintenance of pasteurization and sterilization equipment, plus consulting services for customers seeking to operate similar processes in-house.

Facility footprint. Court filings describe three primary operating facilities at filing, with additional historical locations that had been sold or closed earlier. The Linden, New Jersey facility was described as the largest site and an East Coast pasteurization and sterilization location. The Erie, Pennsylvania and Franklin, New Jersey sites focused on medical device sterilization for third-party manufacturers. A non-debtor affiliate operated a separate facility using a patented steam pasteurization process, and the debtors also reported the sale of Dominican Republic assets in October 2024.

In 2016, Cosmed acquired iuvo BioScience's EtO sterilization facility in Erie, Pennsylvania. The acquisition marked a return to medical device sterilization for Cosmed.

Court filings describe emissions control equipment, including scrubbers designed to reduce EtO emissions. The debtors stated that their operating facilities complied with existing regulatory requirements at filing and that new regulatory standards would require additional capital investment to remain compliant.

Medical device supply chain reliance. EtO is used to sterilize about half of all sterile medical devices in the United States, and the FDA notes that for many devices EtO is the only method that effectively sterilizes without damaging the device. FDA materials also list alternative modalities such as steam, dry heat, gamma radiation, e-beam, x-ray, vaporized hydrogen peroxide, chlorine dioxide gas, vaporized peracetic acid, and nitrogen dioxide. The FDA has stated that other sterilization modalities cannot currently replace EtO for many devices and that development of new methods remains in early R&D phases.

The FDA's January 2024 town hall described EtO as the most commonly used method for medical devices in the United States and highlighted the challenge of replacing EtO for complex devices with material or design constraints.

Market context and customer impact. A market research report estimates the global EtO medical device sterilization market at about $2.18 billion in 2024 with projections reaching $3.23 billion by 2032 and a 5.05% CAGR. The same report cites more than 20 billion devices sterilized annually with EtO. Industry groups in food and medical device supply chains monitored the case. Cosmed secured six-month financing during the case, and the association later highlighted the filing in a member update.

EtO Litigation and Regulatory Pressure

Court filings tie the chapter 11 filing to EtO exposure litigation and regulatory compliance costs. The filings describe hundreds of personal injury suits alleging that EtO emissions from Cosmed facilities caused cancer and other injuries. The company faced at least 300 lawsuits, including class actions, and company counsel said defense costs had become unsustainable. The litigation spans operating and legacy facilities. The debtors reported that insurance carriers denied coverage for personal injury claims under policy exclusions, prompting coverage litigation with at least one carrier. The debtors also reported that 2024 defense costs exceeded $2 million, with projected costs of $4.5 million to $7 million over the following twelve months.

Court filings also describe EtO sterilization as subject to FDA validation standards, OSHA exposure limits, and federal emissions requirements. The debtors stated that regulatory changes finalized in 2024 would require additional capital investment, estimating costs of $2.5 million to $5 million per facility to meet new requirements.

Litigation concentration by venue. The docket outlines several litigation clusters tied to current or former facilities. The Cook County, Illinois litigation relates to a former Illinois facility and includes hundreds of cases alleging negligence, willful or wanton conduct, public nuisance, and ultrahazardous activity. Pennsylvania litigation tied to the Erie facility includes a putative class action seeking damages and medical monitoring relief. New Jersey litigation tied to the Linden facility includes a putative class action with a class defined by proximity to the facility and similar claims for damages and monitoring relief.

EPA risk assessment and rulemaking. The EPA risk assessment for the Franklin, New Jersey facility identified elevated cancer risk estimates for nearby areas, including a 2022 assessment that described a lifetime cancer risk of 100 in a million or greater in the area closest to the facility. The EPA also stated that facility updates in August 2022 reduced risk estimates. In March 2024, the EPA finalized amendments that require a 90% reduction in EtO emissions by 2027 and stated that the rule would reduce the population facing a one-in-a-million cancer risk by about 92%. The rule addressed emissions from sterilization chambers, aeration rooms, and other vents across the commercial sterilization process.

The EPA said the amendments were finalized on March 14, 2024 and published in the Federal Register on April 5, 2024, and the American Hospital Association described the rule as a Clean Air Act section 112 measure. EPA materials also note a 2021 study finding that many high-risk EtO facilities are located in census blocks that are at least 50% minority or low-income.

Industry groups warned that tighter EtO rules could reduce sterilization capacity. AdvaMed said about 50% of U.S. medical devices are sterilized with EtO and warned that proposed restrictions could reduce capacity by 30% to 50%, with reductions of up to 70% in extreme cases. Medical device sterilization accounts for about 0.5% of total commercial EtO use, and closure of even a small percentage of the roughly 100 U.S. sterilization facilities could disrupt the healthcare supply chain; industry groups urged technology-neutral solutions to avoid shutdowns.

The FDA said it monitors the supply chain for shortages tied to EtO facility closures and has highlighted devices such as pediatric tracheostomy tubes and surgical kits as higher-risk categories when capacity is constrained. In November 2024, the FDA issued a transitional enforcement policy allowing certain Class III device manufacturers to move sterilization to new sites without prior approval in defined circumstances to prevent supply disruptions.

Historic enforcement actions. In 2005, the Department of Justice announced a Clean Air Act settlement in which Cosmed agreed to pay a $500,000 civil penalty and fund $1 million in supplemental environmental projects tied to EtO emissions. The settlement described noncompliance with EtO MACT standards at multiple facilities and excess emissions across several states.

Capital Structure and Liquidity

Court filings describe three secured facilities with priority levels and lien positions on substantially all assets. The final cash collateral order states total secured debt of about $6.73 million, including interest, fees, and other amounts due.

Schedules and news coverage described liabilities largely tied to litigation and a creditor body dominated by professional firms. The debtors also described insurance coverage disputes and rising defense costs.

Beyond the secured debt, the case featured a large unsecured litigation creditor base. News reports noted that eight of nine largest unsecured creditors were law firms tied to the EtO litigation. Schedules listed 200 or more creditors, and filings stated that insurance carriers denied coverage for personal injury claims.

Professionals and Case Administration

The case involved multiple professional firms supporting the debtors and the official committee of unsecured creditors. Court filings disclosed retainer balances and compensation structures for several of these professionals.

Debtors' counsel and advisors. The debtors retained Greenberg Traurig as lead bankruptcy counsel, with Houston shareholder David Eastlake identified in news coverage. Court filings describe a remaining advance payment retainer of $1,365,618.79 for Greenberg Traurig as of the petition date, after $2,020,000 received within the 90 days before filing. The debtors also retained RSR Consulting as financial advisor and Riparian Partners as investment banker.

Committee professionals and claims agent. The official committee of unsecured creditors retained Brown Rudnick as co-counsel, with ASK LLP also retained as co-counsel and Province, LLC retained as financial advisor. Court filings show Kroll Restructuring Administration LLC served as claims and noticing agent during the case.

Frequently Asked Questions

What does Cosmed Group do?

Cosmed provides pasteurization and sterilization services for medical device manufacturers and agricultural commodity customers. The company uses EtO and other modalities such as steam, propylene oxide, and dry heat, and its facilities have supported sterilization for medical devices and pasteurization for products like spices and nuts.

Why did Cosmed file for chapter 11?

The filing followed a large volume of EtO personal injury suits and rising defense costs. The company faced hundreds of lawsuits and counsel said defense costs had become unsustainable, while court filings noted insurance coverage denials and projected defense costs.

How many lawsuits were filed against Cosmed?

Court filings describe hundreds of EtO-related lawsuits, including at least 300 cases and multiple class actions. The largest cluster was tied to a former Illinois facility, with additional cases connected to the Erie and Linden facilities.

What were the EPA rule changes affecting EtO sterilizers?

The EPA finalized amendments in March 2024 requiring a 90% reduction in EtO emissions by 2027. The agency also stated that the rule would reduce the population exposed to a one-in-a-million cancer risk by about 92%. These changes required new emissions controls and compliance investments at commercial sterilization facilities.

Who provided the DIP financing?

Zimmer Inc. provided the DIP financing. The court approved a $7.5 million DIP facility from Zimmer, a medical device manufacturer that relies on sterilization services.

What were the main DIP terms?

The DIP facility provided up to $7.5 million, with $2.0 million available on an interim basis and $5.5 million available after final approval. The facility carried an 8.00% base rate payable in kind, a 1.5% commitment fee, and a 1.5% exit fee, and it was secured by a priming lien package with milestones tied to the sale process.

What protections did the cash collateral order provide to prepetition lenders?

The cash collateral order granted replacement liens on postpetition collateral, superpriority claims under sections 503(b) and 507(b), and monthly payments to the senior lender. It required compliance with a budget and a 15% aggregate variance threshold for operating disbursements, and it set a carve-out for U.S. Trustee fees, clerk fees, capped trustee fees and expenses, and allowed professional fees and expenses.

What happened to Cosmed's operating assets?

Cosmed sold its assets in two transactions. The Linden, New Jersey assets were sold to Vapos in June 2025, and the Erie, Pennsylvania and Franklin, New Jersey assets were sold to Lynx Medical Holdings in a separate transaction that closed in August 2025. The Lynx transaction involved a financed purchase note and no cash at closing.

What is the current status of the case?

The case converted to chapter 7 after the asset sales. The debtors reported that remaining estate assets consisted primarily of litigation recoveries, causes of action, and insurance coverage disputes.

Who is the claims agent for Cosmed Group, Inc.?

Kroll Restructuring Administration LLC served as the claims and noticing agent. The firm maintained the official claims register and distributed case notifications to creditors and parties in interest.

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