Please make advantage of the sharing resources accessible via the article’s side or top share button. It is against FT.com’s terms and conditions and copyright policy to copy articles for distribution. Send an email to licensing@ft.com to purchase more rights. The gift article service allows subscribers to share up to 10 or 20 articles each month. a North Carolina-based company that makes semiconductors for electric cars, said that it had reached an agreement with creditors to cut its almost $6.5 billion debt by more than two-thirds.
The deal would essentially wipe away the company’s $4 billion market capitalization from the previous year.
Last year, Wolfspeed and the Biden administration reached an agreement for Wolfspeed to receive $750 million in financing under the federal government’s multibillion-dollar Chips Act initiative, which aims to support domestic semiconductor manufacture.
Paying down a loan that was due the next year was one of the requirements of the Biden financing. However, the negotiations with creditors continued, and the financial flow ended with the election of the Trump administration.
The business had been debating for months whether to pursue a short-term solution to settle a $575 million convertible bond payment that was due the next year or to carry out a thorough restructure to reduce its total debt.
Robert Feurle, the CEO of Wolfspeed, said, “We have chosen to take this strategic step because we believe it will put Wolfspeed in the best position possible for the future after evaluating potential options to strengthen our balance sheet and right-size our capital structure.”
Previously known as Cree, Wolfspeed produced silicon carbide wafers for LED applications. It has recently shifted to chips for industrial applications, most notably electric car drivetrains and charging systems.
In anticipation of a surge in EV manufacturing, it borrowed heavily to finance three multibillion-dollar fabrication sites in the US.
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The business had previously benefited from a $1.5 billion senior secured loan managed by the sizable private capital firm Apollo Global Management, which is now scheduled to be partly repaid.
The other provisions of the debt restructuring include that almost all of the new business shares would be exchanged for around $5 billion in unsecured debt, which includes about $3 billion in convertible bonds and a $2 billion loan from client Renesas Electronics. Three to five percent of the reorganized stock will go to current owners.
According to the corporation, it will declare bankruptcy “in the near future” and become a new business by the end of 2025.
In recent months, a number of renewable energy firms have declared bankruptcy due to rising borrowing rates and policy changes that have decreased government support for electric vehicles and solar energy.
Wolfspeed said that cash flow creation will be sufficient to finance its operations going forward, but it did not immediately reveal if any government subsidies would be made available as part of the ultimate bankruptcy departure.