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The North Carolina-based company has reached an agreement with its creditors to reduce its $6.5bn debt by around 70%, resulting in a decrease of approximately $4.6bn.
Wolfspeed has finalised a creditor agreement to cut its debt by 70%. (Credit: T. Schneider/Shutterstock)
US semiconductor manufacturer Wolfspeed has announced its intention to file for Chapter 11 bankruptcy. This move is part of a comprehensive restructuring strategy to significantly reduce the company’s substantial debt burden. The North Carolina-based firm has secured an agreement with its creditors to cut its $6.5bn debt by approximately 70%, equating to a reduction of about $4.6bn.
The restructuring plan has been formalised through a Restructuring Support Agreement (RSA). This involves key lenders such as holders of over 97% of Wolfspeed’s senior secured notes, Renesas Electronics’ US subsidiary, and convertible debt holders holding more than 67% of the outstanding convertible notes. The measures outlined in the RSA are expected to decrease the company’s annual cash interest payments by around 60%.
“After evaluating potential options to strengthen our balance sheet and right-size our capital structure, we have decided to take this strategic step because we believe it will put Wolfspeed in the best position possible for the future,” said Wolfspeed CEO Robert Feurle.
According to Feurle, a stronger financial foundation will allow the chipmaker to concentrate on innovation in rapidly growing sectors undergoing electrification, where quality, durability, and efficiency are crucial.
Impact on shareholders and previous government funding challenges
This financial restructuring will have a significant impact on existing shareholders, potentially wiping out much of their equity following last year’s market valuation of $4bn. Previously, Wolfspeed had an agreement with the Biden administration for $750m in funding under the Chips Act programme, designed to bolster domestic semiconductor production. However, subsequent political changes involving the current Trump administration led to these funds being withheld. Established in 1987, Wolfspeed is engaged in manufacturing wafers and devices made from silicon carbide.
A critical aspect of its RSA includes new financing worth $275m through second-lien convertible notes, fully supported by certain existing debt holders. Additionally, there will be a paydown of senior secured notes amounting to $250m. Existing convertible notes worth $5.2bn will be exchanged for new notes and common equity. Current equity will be cancelled, with equity holders receiving a small share of the new common equity.
To implement these transactions, Wolfspeed plans to seek approval for a pre-packaged reorganisation plan before filing voluntary petitions under Chapter 11 of the US Bankruptcy Code. The company aims to expedite this process and emerge from bankruptcy by the end of Q3 2025 while maintaining operations in silicon carbide materials and devices.
Throughout this period, Wolfspeed intends to continue regular operations and serve customers without disruptions. The company plans to maintain vendor payments through an All-Trade Motion and will file necessary motions with the Bankruptcy Court to support ongoing employee compensation and benefits programmes. Despite not disclosing potential government subsidies upon exiting bankruptcy, Wolfspeed asserts that future cash flow will sufficiently fund its operations moving forward.
Read more: President Trump proposes repealing CHIPS Act to reduce national debt
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