ProSomnus: De-SPAC Leverage Drives a Fast Chapter 11 Plan

ProSomnus, Inc. filed a Delaware chapter 11 case in May 2024 less than two years after becoming a public company through a de‑SPAC transaction, offering a compact case study in how post‑transaction leverage and capital-market constraints can force a balance-sheet restructuring even when the underlying business claims to be operating and growing. The company manufactures oral appliance therapy devices for obstructive sleep apnea (OSA), a product category that sits at the intersection of medical-device regulation, provider (dentist) channel economics, and consumer adherence dynamics—a combination that can produce revenue momentum while still leaving a business vulnerable to financing structure choices.

The case proceeded on a fast plan track: a relatively small, bridge‑style DIP facility funded near-term liquidity while the debtors implemented a plan that converted secured note claims into a mix of new notes and reorganized equity, canceled existing equity, and left general unsecured trade claims unimpaired, as reflected in the Plan, Disclosure Statement, and Confirmation Order. Within roughly 90 days, the court confirmed the plan and the debtors filed an Effective Date Notice, followed later by a Final Decree Motion that framed remaining tasks as limited to post-effective-date housekeeping.

De‑SPAC Overleverage to Fast-Track Plan Confirmation

Business overview: oral appliance therapy and how ProSomnus positioned the product. ProSomnus operates in the OSA treatment market, manufacturing oral appliance therapy devices. Transaction materials around the SPAC process positioned ProSomnus as a patient‑preferred sleep apnea therapy, and described its devices as a less invasive alternative to CPAP therapy. Industry reporting noted FDA clearance for the EVO line, and the First Day Declaration described the product line as FDA Class II devices.

The most consequential point for restructuring readers is not the clinical debate around OSA modalities, but the economic structure of the business: revenue can grow while capital needs remain high due to public-company costs, inventory and manufacturing working capital, channel investments, and the periodic need to refinance or repay debt issued during transaction events. In ProSomnus’s case, the de‑SPAC transaction and associated financing stack became the center of gravity for the bankruptcy story.

Operating footprint and continuity claims. The First Day Declaration listed approximately 129 U.S. employees, 2 in Canada, and 11 employees internationally, implying the case focused on preserving a specialized operating footprint while addressing the balance sheet. Public communications emphasized paying employees, customers, and vendors.

De‑SPAC timeline and why the public-company structure mattered. The de‑SPAC path matters because it often pairs a public listing with a debt stack structured to fund transaction close, provide sponsor or investor economics, and finance near-term growth projections—sometimes with limited room for error if capital markets tighten. ProSomnus’s public-company origin story is described in transaction announcements and post-close communications: shareholders approved the business combination in December 2022, the transaction closed around December 6, 2022, and public trading began.

Court filings later framed public-company status as having a cost and accounting burden that became more difficult to carry as financing options narrowed. The CFO Declaration described a significant increase in net and comprehensive loss from 2022 to 2023 as being attributable “in large part” to public-company expenses and trailing accounting related to the de‑SPAC transaction. In the same document, management described the post‑de‑SPAC balance sheet as overleveraged with debt structures not conducive to securing additional capital at a time when liquidity was needed to continue operating.

Stated causes of distress: capital structure plus constrained capital markets (not an operational shutdown narrative). The core “cause” narrative in this case is explicitly financial. The CFO Declaration stated that the de‑SPAC public listing left the company overleveraged and facing an inability to raise additional capital or refinance the debt structure in a challenging capital markets environment. Management described the consequence in unambiguous terms: absent additional funding and liquidity, the business would be unable to continue as a going concern.

External reporting around the filing generally matched the positioning of a balance-sheet restructuring rather than an operational collapse. A trade publication described a plan to reduce debt by about 60%, inject approximately $20 million of new capital, and keep operations normal, including paying employees, customers, and vendors. The restructuring was presented as a plan to reduce debt, convert debt to equity, and take the company private.

Prepetition capital structure: secured notes split by lien priority. For restructuring readers, the capital structure table is the “map” that explains recoveries and why a quick plan can work when the creditor stack is relatively concentrated. Court filings described a set of secured convertible and exchange note instruments with liens on substantially all assets, divided between first‑priority and second‑priority tranches. The CFO Declaration listed issued and outstanding amounts for the convertible notes and exchange notes, creating a layered secured structure that is common in de‑SPAC and post‑transaction financing stacks.

General unsecured creditors totaled approximately $3.3 million, and the plan left general unsecured claims unimpaired and paid in the ordinary course, as described in the CFO Declaration and the plan materials. This matters because it helps explain the plan’s voting dynamics: if the critical constituency is the secured noteholders and trade creditors are paid in full, the plan can move quickly even if equity is wiped out and certain litigation-related classes are deemed to reject.

The restructuring objective: quantified deleveraging plus new capital. The CFO Declaration set explicit targets: the plan would reduce secured obligations by 65% (about $27 million) and would include approximately $9 million of working‑capital proceeds from new third‑party equity investors and sponsoring noteholders purchasing additional equity upon emergence. Those are the numbers that make the “why file” explanation concrete. They also align with the logic of a short‑duration chapter 11 case: if creditor constituencies agree to a recapitalization and capital injection, the case can be run like a transaction closing with court oversight rather than like a multi-quarter operational turnaround.

DIP financing: small-dollar bridge with roll-in mechanics and conversion-to-equity features. The DIP structure further reinforces that this was designed as a bridge to a plan rather than a long operational reorganization. The DIP package included $7.0 million of new money term loans and a $6.0 million roll‑in composed of bridge notes and senior notes, with interim and final draw availability, as described in the DIP Motion and interim order. The DIP Declaration described conversion mechanics under which DIP obligations could convert into reorganized equity upon emergence, mirroring a common feature in fast‑track recapitalizations where the financing providers are also the plan sponsors and future equity holders.

The DIP Motion record also provides a clearer view of pricing than the final-order excerpts alone: it described DIP loans bearing interest at Prime Rate plus 9.00% per annum, a default rate of an additional 2.00% above the applicable rate, and an exit fee of 10.00%. Even without a detailed term sheet discussion, those terms indicate a financing package consistent with a short runway and a sponsor-led deal structure.

Reconciling “aggregate financing” headlines with the docket’s mechanics. Company communications described approximately $20 million in aggregate financing in connection with the restructuring, which is the kind of headline that can be ambiguous because it may include multiple instruments: DIP new money, rolled-in debt that effectively refinances into the DIP and then equity, and the new equity funding component at emergence. The DIP Motion, DIP Declaration, and Plan materials break out these components more explicitly—new money DIP, roll-in, and separate new‑money equity investment—making it possible to tell a more precise story about how much fresh cash entered the enterprise versus how much was conversion/recapitalization mechanics.

Plan structure and class treatment: who got new notes, who got equity, and who got paid in full. The Disclosure Statement included a concise treatment summary with projected recoveries that are unusually useful for a blog post because they quantify the economic deal rather than leaving it as a narrative abstraction. Under the plan summary, 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 equity (subject to dilution for a management incentive plan) with a projected recovery of 33.17%. General unsecured claims were treated as unimpaired and paid in full in the ordinary course after the effective date, and existing equity interests were canceled, released, and extinguished with a projected recovery of 0%, as reflected in the Plan, Disclosure Statement, and Confirmation Order.

The plan summary also carved out “Excluded Parties,” who received no distribution, highlighting that the plan’s recovery allocations were not simply mechanical pro rata distributions; they incorporated defined limitations and eligibility conditions. For practitioners, this is the kind of detail that often becomes critical in claim trading, claim objection strategy, and stakeholder negotiations, because it can affect which holders are eligible for value.

Why the plan could move quickly: concentrated secured constituencies and unimpaired trade claims. A fast plan track is easier when trade creditors are left unimpaired and paid in the ordinary course, because the case avoids a prolonged bar-date-and-distribution fight for routine vendors. It also becomes feasible when the secured creditors who will receive the reorganized capital structure (new notes and equity) are aligned enough to support an RSA or equivalent plan path. ProSomnus’s public communications described support from existing investors and lenders and emphasized continuity of operations. The docket record then translated that narrative into quantified distributions and a clear governance transition on the effective date.

New equity funding and governance transition: what the plan documents show (and what they leave to the plan supplement). The Plan defined the “New Money Common Equity Investment” and “New Money Common Equity” as a new‑money equity raise to be consummated on the effective date in accordance with investment documents and a restructuring term sheet, with a backstop commitment covering 100% of the investment and “Backstop Parties” consisting of sponsoring noteholders and/or third‑party investors. The Plan also defined a “New Board” to be set forth in the plan supplement and described adoption of a management incentive plan by the new board after the effective date.

This is a common structure in accelerated confirmations: the plan sets the economic and governance framework and points to a plan supplement for final governance specifics (board names, organizational documents, and investment documentation). For a professional audience, the key takeaway is that the plan is the enforceable instrument that binds class treatment and releases, but many corporate governance details can be implemented through the plan supplement after conditional approval paths are satisfied.

Releases, opt-outs, and confirmation findings (high level). Confirmation in modern cases often turns on release and exculpation mechanics, especially for plan sponsors and case fiduciaries. The Confirmation Order stated that procedures for opting out of third‑party releases were clear and conspicuous and approved opt‑out procedures tied to the third‑party releases in the Plan. The confirmation record also approved release, exculpation, and injunction provisions as part of the plan framework.

The practical implication for stakeholders is straightforward: to the extent the plan contained third-party releases, the opt-out process became a time-sensitive decision point for parties receiving solicitation materials. For restructuring professionals, this can influence communication strategy, claimholder behavior, and whether plan support is predictable, especially in cases where certain creditor groups may be deemed to reject while still being bound by confirmation findings and effective date implementation.

Timeline: petition, confirmation, effective date, and case closing posture. The case’s fast cadence is visible in the docket milestones and in the market-facing disclosures about emergence. The debtors filed on May 7, 2024, the court entered a confirmation order on July 30, 2024, and the debtors filed an effective date notice for August 5, 2024. Industry coverage reported that it emerged on Aug. 5.

Post-effective-date checklist and closure mechanics. The Effective Date Notice set a fee deadline of Sept. 19, 2024. A subsequent Final Decree Motion stated that substantial consummation occurred on August 5, 2024 and described remaining post‑effective tasks as limited to filing a final report and paying statutory fees, supporting closure of the case. Fast‑track cases often use this sequence—effective date notice, fee application deadline, final decree motion—to constrain the “tail” of professional fee administration and bring the case to a close once the plan has been implemented.

Key professionals and claims administration (without claims portal links). The docket record reflects a typical Delaware retention stack for a fast plan case, including bankruptcy counsel, a financial advisor, and a claims and noticing agent responsible for maintaining the claims register and serving notices. The debtors sought to retain Polsinelli PC as bankruptcy and restructuring counsel and Wilson Sonsini Goodrich & Rosati, P.C. as special corporate counsel to handle corporate governance, securities/SEC disclosure, and transaction support. Court filings also reflect retention of Gavin/Solmonese LLC as financial advisor under a flat monthly fee structure, all as detailed in the retention applications.

For claims administration, the debtors sought to employ Kurtzman Carson Consultants LLC as claims and noticing agent, with duties that include maintaining the official claims register, processing proofs of claim, and serving required notices for key case events, as described in the claims agent retention application. For readers, the key point is functional: the claims agent maintains the claims register and handles noticing infrastructure; it does not imply a “claims portal” link is necessary to understand the case.

Frequently Asked Questions

When did ProSomnus file for chapter 11 bankruptcy?

The debtors filed their chapter 11 petitions on May 7, 2024. A May 8, 2024 company announcement described the restructuring.

Where was the ProSomnus bankruptcy case filed, and who is the judge?

The case was filed in the U.S. Bankruptcy Court for the District of Delaware and was assigned to Hon. John T. Dorsey.

What does ProSomnus do, and what market does it serve?

ProSomnus manufactures oral appliance therapy devices positioned as a less invasive alternative to CPAP therapy. Industry reporting noted FDA clearance for the EVO line.

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

Management described the company as becoming 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 or raise liquidity, as described in the CFO Declaration. Public transaction materials show 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?

Court filings described a DIP structure with $7.0 million of new money and a $6.0 million roll‑in (bridge notes and senior notes), plus conversion‑to‑equity mechanics tied to DIP obligations at emergence, as described in the DIP Motion and DIP Declaration.

What were the headline DIP pricing terms in the court record?

The DIP Motion record described DIP loans bearing interest at Prime Rate plus 9.00% per annum, a default rate of an additional 2.00% above the applicable rate, and an exit fee of 10.00%.

How were the senior and subordinated noteholder claims treated under the plan?

The Disclosure Statement summary described senior notes claims as receiving a pro rata share of new notes with a projected recovery of 88.77% and subordinated notes claims as receiving a pro rata share of 22.48% of new common equity, subject to dilution for a management incentive plan (projected recovery 33.17%). The Plan and Confirmation Order implemented these treatments at confirmation and effectiveness.

What recoveries were projected for general unsecured creditors and existing equity?

General unsecured claims were described as unimpaired and paid in full in the ordinary course after the effective date (projected recovery 100%), while existing equity interests were canceled and received no recovery (projected 0%), as reflected in the Plan and Disclosure Statement.

When was the plan confirmed and when did it become effective?

The court entered the confirmation order on July 30, 2024, and the debtors filed a notice stating the plan became effective on August 5, 2024. Industry coverage reported that it formally emerged on August 5, 2024.

Who is the claims agent for ProSomnus?

Kurtzman Carson Consultants LLC serves as the claims and noticing agent, as described in the claims agent retention application. The firm maintains the official claims register and distributes case notifications to creditors and parties in interest.

For more chapter 11 case research and restructuring summaries, visit the ElevenFlo bankruptcy blog.