Shares of silicon carbide chip manufacturer Wolfspeed (WOLF +0.00%) sank on Monday, falling 34.4% as of 12:18 p.m. ET.
Wolfspeed issued a press release today noting it plans to declare Chapter 11 bankruptcy in order to restructure its significant debt load.
This move had been telegraphed earlier in May, as Wolfspeed ran into funding struggles earlier this year when the government didn't follow through on an expected CHIPS Act subsidy. But while many bankruptcies lead to a "zero," it appears equity holders will at least retain a shred of the company going forward.
NYSE: WOLF
Key Data Points
Shareholders will get 3% to 5% of new equity
Under the terms of the announced restructuring plan, Wolfspeed will:
- Receive $275 million of new convertible notes, bought by some of its existing current note investors.
- That will pay off $250 million of senior secured notes at a 9.75% premium.
- Most consequentially, Wolfspeed will convert $5.2 billion in existing convertible notes and a $2 billion prepayment from Japanese chipmaker Renesas into just $500 million in new senior notes, 95% of new equity, and warrants.
- Existing equity holders will have their shares cancelled, but receive 3% to 5% of the new equity.
With these transactions, Wolfspeed will reduce its debt load by about 70%, or $4.6 billion, and interest payments by 60%.
Image source: Getty Images.
Will the restructured company be a turnaround play?
Wolfspeed had invested heavily in building next-generation silicon carbide (SiC) chips, which is still supposed to be a high-growth market niche. That being said, the main use case for SiC chips in electric vehicles has slowed down markedly, which is likely the main reason Wolfspeed wasn't able to generate the expected amount of revenue and profit to cover its interest payments and pay down debt.
However, investors may want to take a look at the restructured company once it emerges from bankruptcy, which is forecast by the end of the third quarter of 2025. SiC should continue to grow as more high-voltage applications emerge in EVs, electric infrastructure, and now artificial intelligence (AI) data centers. Going forward, Wolfspeed will have a lower debt burden, and may eventually see its next-generation SiC manufacturing capabilities find favor in the market.
As of now, however, investors may want to see how the dust settles after all these transactions are said and done before diving in.
