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Wolfspeed, a North Carolina manufacturer of semiconductors for electric vehicles, said it had struck a deal with creditors to reduce its near $6.5bn debt by more than two-thirds as a part of a bankruptcy package.
The transaction will nearly wipe out shareholders of the company, which had a market capitalisation last year of $4bn.
Wolfspeed last year had an agreement with the Biden administration to receive $750mn of funding through the Chips Act programme, the federal government’s multibillion-dollar fund to subsidise domestic semiconductor production.
A condition of the Biden financing included settling a debt payment due next year. But that negotiation with creditors dragged on and the election of the Trump administration put an end to the cash infusion.
The company had for months been trying to decide whether to seek a short-term fix to resolve a $575mn convertible bond payment set for next year, or undertake a comprehensive restructuring to slash its overall debt.
“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 Robert Feurle, Wolfspeed’s chief executive officer.
Wolfspeed was previously known as Cree and manufactured silicon carbide wafers for use in LEDs. In recent years, it had pivoted to chips for industrial settings, most prominently drivetrains and charging systems for electric vehicles.
Its heavy borrowing was to fund three multibillion-dollar fabrication plants in the US with the expectation of booming EV production.
Apollo Global Management, the large private capital firm, had led a previous $1.5bn senior secured loan to the company which is now set to be partially paid down.
According to the other terms of the debt restructuring around $5bn of unsecured debt, which includes around $3bn of convertible bonds as well as a $2bn loan from customer Renesas Electronics, will be swapped into nearly all the new shares in the company. Existing shareholders will get between 3 per cent and 5 per cent of the reorganised equity.
The company said it would formally file for bankruptcy “in the near future” and emerge as the new company by the end of 2025.
Several clean energy companies have filed for bankruptcy in recent months as a result of elevated interest rates and changes in government policies that have reduced support for solar power and electric cars.
Wolfspeed did not immediately disclose if any government subsidies would be made available as part of the eventual bankruptcy exit, although it said cash flow generation would be enough to fund its operations in the future.
