Shares of US semiconductor manufacturer Wolfspeed plummeted 30% on Monday following an announcement that the company is preparing to file for bankruptcy as part of a restructuring plan, supported by major creditors.
Wolfspeed has reached a restructuring agreement with leading creditors, aiming to reduce debt by approximately 70%, equivalent to $4.6 billion in the bankruptcy filing, while preparing new capital liquidation.
Market Reaction to Wolfspeed's Restructuring Plan
According to the Wall Street Journal, the US-based silicon carbide and semiconductor component manufacturer has signed an agreement with most convertible bondholders and senior debt creditors, and is expected to propose terms to creditors.
Immediately after the news, the chip supplier's stock dropped 12% in pre-market trading. Since the beginning of the year, the share price has evaporated by over 86%, suffering a deep 59% plunge when bankruptcy rumors emerged in early May.
Recently, Wolfspeed focused on producing semiconductors for electric vehicle (EV) drive systems and charging systems but faced difficulties due to the US's rigid tariffs and slowing EV demand, putting heavy pressure on its financial balance sheet. The unsustainable debt burden forced the company to choose this path.
"After considering options to enhance capital structure and optimize the balance sheet, we decided on this strategic move to position Wolfspeed in the best possible way in the future."
CEO Robert Feurle.
The restructuring process will help the company clean up its balance sheet and create momentum for new development, though current shareholders will face near-total share dilution.
Wolfspeed Targets New Funding
Company information reveals the restructuring plan will unlock new funding of $275 million. The June 22 announcement also plans to cut annual expenses by 60%, retaining a reorganized stake of 3% to 5% for existing shareholders.
As of March 31, Wolfspeed maintained cash reserves of $1.3 billion, sufficient to operate the business and support customers during the restructuring process.
The company expects to complete bankruptcy and reorganization, returning to normal operations by the end of the third quarter this year, through a vote approving the pre-prepared Chapter 11 restructuring plan. According to Guru Focus, "prepackaged" plans typically accelerate court approval by negotiating terms in advance.
Wolfspeed aims to maintain continuous operations while protecting customer interests and making timely payments to suppliers. Current shareholders will receive a small portion of new common stock, according to Tipranks. The company has also laid off 73 employees at its Siler City facility.
Prior to the bankruptcy news, Wolfspeed's stock was rated neutral with 2 buy recommendations, 4 sell recommendations, and 1 hold recommendation on Tipranks.
