ProSomnus: $27M Secured Debt Cut in 90-Day Plan

ProSomnus, Inc. moved from chapter 11 petition to confirmed plan in 84 days and to emergence in 90, converting its secured note debt into a mix of new notes and reorganized equity, canceling existing stockholders, and paying trade creditors in full — a balance-sheet restructuring driven less than two years after the company became public through a de‑SPAC transaction.

The maker of oral appliance therapy devices for obstructive sleep apnea filed its voluntary petition on May 7, 2024 in the U.S. Bankruptcy Court for the District of Delaware, lead case No. 24-10972 before Judge John T. Dorsey. The debtors entered the case with a restructuring support agreement backed by sponsoring noteholders, funded near-term liquidity with a bridge-style DIP facility, and implemented the deal through the Plan, Disclosure Statement, and Confirmation Order. The court confirmed the plan on July 30, 2024, and the debtors filed an Effective Date Notice for August 5, 2024.

Debtor(s)	ProSomnus, Inc. (3 jointly administered debtors)
Court	U.S. Bankruptcy Court, District of Delaware
Case Number	24-10972
Judge	Hon. John T. Dorsey
Petition Date	May 7, 2024
Confirmation Date	July 30, 2024
Effective Date	August 5, 2024
DIP Facility	$7.0M new money plus $6.0M roll-in (bridge and senior notes) for a $13M aggregate facility, with conversion-to-equity at emergence
Outcome	Secured notes converted into new notes and reorganized equity; general unsecured claims unimpaired; existing equity canceled

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From Lakeshore De‑SPAC to an Overleveraged Balance Sheet

ProSomnus manufactures oral appliance therapy devices for obstructive sleep apnea (OSA), marketed as a less invasive alternative to CPAP therapy. The First Day Declaration described the product line as FDA Class II devices, and industry reporting noted FDA clearance for the EVO line. The company employed approximately 129 people in the United States, 2 in Canada, and 11 international contractors in Europe.

The company became public through a de‑SPAC transaction with Lakeshore Acquisition I Corp. under a May 9, 2022 merger agreement, with securities beginning trading on Nasdaq on December 6, 2022 after shareholders approved the business combination. ProSomnus reported fiscal year 2023 revenues of $27.7 million — a 43% increase over fiscal year 2022 — but against a $24.1 million net loss and a $(38.2) million stockholders' deficit. In September 2023, approximately eight months before the chapter 11 filing, the company raised $10 million of convertible preferred equity from existing investors Spring Mountain Capital and Cetus Capital. The First Day Declaration attributed a significant increase in net and comprehensive loss from 2022 to 2023 "in large part" to public-company expenses and trailing accounting tied to the de‑SPAC transaction.

Management framed the filing as financial rather than operational. The First Day Declaration stated that the de‑SPAC listing left the company overleveraged, with debt structures not conducive to securing additional capital, and that constrained capital markets limited its ability to refinance or raise liquidity; absent new funding, the business would be unable to continue as a going concern. The debtors entered chapter 11 with a restructuring support agreement backed by sponsoring noteholders, describing the case as a pre-arranged deleveraging built around DIP financing, debt-for-equity exchanges, and a new-money investment at emergence. External reporting matched that positioning, describing a plan to reduce debt by about 60%, inject roughly $20 million of aggregate financing, and keep operations normal while paying employees, customers, and vendors.

Secured Note Stack and Lien Priority

The prepetition capital structure was a set of secured convertible and exchange notes with liens on substantially all assets, split between first‑priority and second‑priority tranches. The First Day Declaration identified approximately $21.34 million of senior secured convertible notes due December 6, 2025 — including original issuance, accrued interest, and $4 million of April 2024 bridge notes — with Wilmington Trust National Association serving as trustee and collateral agent. The secured stack was concentrated and aligned through the RSA across the tranches below.

Instrument	Amount	Lien priority	Plan-structuring implication
Senior convertible notes	$21.34M issued; outstanding principal not less than $17.57M	First-priority	Senior secured constituency anchoring the RSA, taking new notes as consideration
Senior exchange notes	$3.39M issued/outstanding	First-priority (pari passu with senior convertible notes)	First-lien tranche treated alongside senior convertible notes
Subordinated convertible notes	$17.45M issued; outstanding principal not less than $5.32M	Second-priority	Junior secured constituency, structurally subordinated, shaping the equity allocation
Subordinated exchange notes	$12.14M issued/outstanding	Second-priority (pari passu with subordinated convertible notes)	Second-lien stack treated as a class in the plan

All four tranches are described in the First Day Declaration. General unsecured creditors totaled approximately $3.3 million, and the plan left general unsecured claims unimpaired and paid in the ordinary course, as set out in the same declaration and the Plan. Management set explicit deleveraging targets: a 65% reduction in prepetition secured obligations, about $27 million, plus approximately $9 million of working-capital proceeds from new third‑party equity investors and sponsoring noteholders purchasing additional equity at emergence.

DIP Financing and Conversion-to-Equity Bridge

The DIP package was sized as a bridge to the plan rather than a long operational reorganization. The Interim DIP Order authorized $7 million of new money, with $2.5 million available immediately on an interim basis and the remaining roughly $4.5 million available after final approval, plus a roll-in component; Wilmington Savings Fund Society, FSB served as DIP administrative and collateral agent. The Final DIP Order described the full package as $7 million of new money plus a roll-in consisting of $4 million of bridge notes with accrued interest and $2 million of senior notes, for an aggregate $13 million DIP facility referenced in the Plan materials. The DIP Declaration described conversion mechanics under which DIP obligations could convert into reorganized equity at emergence, aligning the financing providers with their roles as plan sponsors and future equity holders.

The DIP Motion record set out pricing consistent with a short runway and a sponsor-led deal: DIP loans bearing interest at Prime Rate plus 9.00% per annum, a default rate of an additional 2.00%, and an exit fee of 10.00%.

Term	Court filing description	Function in a ~90-day case
New money	$7.0M ($2.5M interim)	Immediate liquidity while the plan process moved
Roll-in	$6.0M ($4M bridge notes + $2M senior notes)	Elevated select prepetition obligations into the DIP, keeping new cash modest
Aggregate facility	$13M	Total DIP exposure tied to the emergence transaction
Interest rate	Prime + 9.00%	Pricing consistent with distressed bridge financing
Exit fee	10.00%	Higher administrative cost accepted where financing is tied to plan sponsorship
Conversion feature	DIP obligations convert to reorganized equity	Aligns lender economics with the plan end state

The DIP liens were expressly subject to the carve-out and could not prime Wells Fargo's permitted liens on the card-account and letter-of-credit collateral, as set out in the Final DIP Order. Separately, the Final Cash Management Order let the debtors continue using the Wells Fargo commercial card program, recognized Wells Fargo's first-priority liens on the card-account and letter-of-credit collateral, and capped card-program exposure at $75,000.

Plan Treatment and Projected Noteholder Recoveries

The Disclosure Statement quantified the economic deal. Holders of allowed senior notes claims received their pro rata share of "New Notes" with a projected recovery of 88.77%, while holders of allowed subordinated notes claims received their pro rata share of 22.48% of new common equity (subject to dilution for a management incentive plan) with a projected recovery of 33.17%. General unsecured claims were unimpaired and paid in full in the ordinary course, and existing equity interests were canceled, released, and extinguished with a projected recovery of 0%, as reflected in the Plan and Confirmation Order.

Class / constituency	Plan treatment	Projected recovery	Notable condition
Senior notes claims (Class 1)	Pro rata share of new notes	88.77%	Excluded Parties receive no distribution
Subordinated notes claims (Class 2)	Pro rata share of 22.48% of new equity (subject to MIP dilution)	33.17%	Excluded Parties receive no distribution
General unsecured claims (Class 5)	Unimpaired; paid in full in ordinary course	100%	Continued ordinary‑course payment/dispute framework
Existing equity interests	Canceled and extinguished	0%	Equity wiped out at emergence

The Disclosure Statement carved out "Excluded Parties," who received no distribution, so the recovery allocations incorporated defined eligibility conditions rather than purely mechanical pro rata distributions. The Plan defined the "New Money Common Equity Investment" as a new‑money equity raise consummated on the effective date, with a backstop commitment covering 100% of the investment and "Backstop Parties" consisting of sponsoring noteholders or third‑party investors. DIP administrative expenses converted into new common equity on the effective date at the new-money equity price.

The Confirmation Order approved the transition to private-company status, vested estate property in the reorganized parent on the effective date, and authorized the dissolution of ProSomnus, Inc. and ProSomnus Holdings, Inc. as part of the plan implementation structure. A "New Board" was set forth in the Plan Supplement, with the management incentive plan to be adopted by the new board after the effective date.

U.S. Trustee Release Objection and Plan Voting

The principal confirmation fight came from the U.S. Trustee, which objected to the plan's non-consensual third-party release structure, arguing the releases were overly broad and relied on opt-out or silence-based consent in a manner inconsistent with the Supreme Court's guidance in Purdue Pharma.

The Vote Tabulation Declaration nevertheless showed unanimous acceptance from both voting classes: three accepting Class 1 ballots totaling $16,954,807 and eight accepting Class 2 ballots totaling $20,709,422, with no rejecting votes. The tabulation also identified several parties that opted out of the third-party release. The Confirmation Order approved the release, exculpation, and injunction provisions in Article VIII and found the opt-out procedures clear and conspicuous, approving the releases over the U.S. Trustee's objection.

Wells Fargo Card Collateral Release Mechanics

The Confirmation Order rejected and terminated the WellsOne Commercial Card Agreement on the effective date but preserved Wells Fargo's first-priority security interest in the card-account collateral until the obligations were satisfied. Wells Fargo had 45 days after the effective date to provide a statement of obligations, and the reorganized debtors then had 10 business days to pay.

After payment, the Confirmation Order required Wells Fargo to release 80% of the remaining card-account collateral within 10 business days, allowed it to hold back the remaining 20% for 30 days, and required release of any remainder by the end of that holdback period unless it timely identified additional obligations. The order also preserved Wells Fargo's rights in the letter-of-credit collateral and prevented amendment or termination of deposit-agreement rights for 120 days after the effective date absent a default.

Professionals, Fees, and Case Closure

The debtors retained Polsinelli PC as bankruptcy and restructuring counsel and Wilson Sonsini Goodrich & Rosati, P.C. as special corporate counsel for corporate governance, securities and SEC disclosure, and transaction support, with Gavin/Solmonese LLC as financial advisor under a flat monthly fee. Kurtzman Carson Consultants LLC (now Verita Global) served as claims and noticing agent. The retentions are reflected in the applications for Polsinelli, Wilson Sonsini, Gavin/Solmonese, and the claims agent. On the creditor side, Lowenstein Sandler LLP represented the group of convertible noteholders that anchored the RSA and would hold a majority of the reorganized company at emergence.

The Omnibus Final Fee Order approved combined fees and expenses of $895,128.92 for Polsinelli, $579,479.20 for Wilson Sonsini, $601,627.78 for Gavin/Solmonese, and $25,293.00 for Verita Global, all covering the period from May 7, 2024 through August 5, 2024.

The Final Report stated the plan was substantially consummated on August 5, 2024 and summarized treatment by class: Class 1 received pro rata new notes, Class 2 received pro rata shares of 22.48% of new common equity subject to dilution, Class 5 was paid or disputed in the ordinary course, and Classes 6 and 7 received no recovery. The debtors moved for a final decree after stating distributions had been made on or immediately after the effective date, and the court entered the Final Decree on September 18, 2024 alongside the final fee approvals, bringing the case to a close roughly four and a half months after filing.

Key Timeline

Date	Milestone	Primary reference
Dec. 6, 2022	De‑SPAC closing; Nasdaq trading begins	Public debut
May 7, 2024	Petition and first-day motions filed	Voluntary Petition
May 9, 2024	Interim DIP order entered	Interim DIP Order
June 5, 2024	Final DIP and final cash management orders entered	Final DIP Order
June 26, 2024	Amended plan materials filed; disclosure statement approved	Disclosure Statement
July 30, 2024	Confirmation order entered	Confirmation Order
Aug. 5, 2024	Plan effective; transactions closed	Effective Date Notice
Sept. 18, 2024	Final decree entered; final fees approved	Final Decree

Industry coverage reported that ProSomnus emerged on August 5, 2024, and its financial advisor described emergence with all creditors paid in full.

Frequently Asked Questions

When did ProSomnus file for chapter 11, and where?

The debtors filed their chapter 11 petitions on May 7, 2024 in the U.S. Bankruptcy Court for the District of Delaware, lead case No. 24-10972 before Judge John T. Dorsey. A May 8, 2024 company announcement described the restructuring.

Why did ProSomnus enter chapter 11 after going public via a SPAC?

Management described the company as overleveraged after the de‑SPAC transaction, with debt structures not conducive to raising additional capital, and stated that constrained capital markets limited its ability to refinance, as described in the First Day Declaration. The business combination closed in December 2022, placing the filing within roughly an 18‑month listing timeline.

How much DIP financing did ProSomnus obtain, and what was rolled in?

The Final DIP Order described $7.0 million of new money plus a $6.0 million roll‑in ($4 million of bridge notes and $2 million of senior notes) for a $13 million aggregate facility, with conversion‑to‑equity mechanics at emergence. The DIP Motion priced the loans at Prime plus 9.00%, with a 10.00% exit fee.

How were the senior and subordinated noteholder claims treated?

The Disclosure Statement projected a 88.77% recovery for senior notes claims (pro rata new notes) and 33.17% for subordinated notes claims (pro rata 22.48% of new equity, subject to MIP dilution). General unsecured claims were unimpaired and paid in full (100%), while existing equity was canceled (0%).

What was the main confirmation dispute?

The U.S. Trustee objected to the plan's non-consensual third-party releases, citing Purdue Pharma. Both voting classes accepted the plan with no rejecting votes per the Vote Tabulation Declaration, and the Confirmation Order approved the release and opt-out procedures.

Who is the claims agent for ProSomnus?

Kurtzman Carson Consultants LLC, now operating as Verita Global, served as claims and noticing agent under its retention application, maintaining the official claims register and serving case notices. Its fees were among those approved in the omnibus final fee order.

For related restructuring coverage, see the ElevenFlo bankruptcy blog.