Wolfspeed (WOLF) announced this week that its plan of reorganization has been approved by a court, and the company expects to emerge from Chapter 11 bankruptcy protection in the next several weeks.
The company said that it expects to reduce its debt by 70% – or about $4.6 billion – after its bankruptcy filing, “better positioning the Company to execute on its strategic priorities with a relentless focus on innovation.”
The conclusion of the Chapter 11 proceedings marks an end to a turbulent year for Wolfspeed, the world’s leading producer of silicon carbide, or SiC, and a manufacturer of silicon carbide applications.
The company fired its CEO Gregg Lowe last November, cut 20% of its workforce, shuttered a North Carolina plant, and scrapped plans for a new facility in Germany.
Its debt ballooned as it scaled, and a $750 million CHIPS Act grant, the largest allocation under the program, remained frozen in political limbo under the Trump administration.
The money had been approved during Biden’s term but never disbursed before he left office, creating a critical delay in capital at a time when the company urgently needed federal funding.
Wolfspeed named Robert Feurle as its new CEO in March, succeeding Lowe.
“We are pleased to reach this important milestone, which clears the path for us to complete our restructuring process in the coming weeks,” Feurle said about the bankruptcy proceedings.
“We believe that strengthening our capital structure will help us to shape Wolfspeed into a leader in its industry, and we look forward to emerging with the financial flexibility to move swiftly on our strategic priorities and reinforce our leadership in silicon carbide.”
Last year, activist investor Jana Partners took a "significant stake” in Wolfspeed and urged it to launch a “comprehensive review of strategic alternatives,” including a sale of the company.
Jana exited its entire position in Wolfspeed back in May.
Good news for the company, bad news for shareholders
Ken Squire, founder and president of 13D Monitor, an institutional research service on shareholder activism, noted last year that demand has never been a problem for Wolfspeed.
The silicon carbide wafer that the company produces “is an extremely difficult and expensive substrate to manufacture,” and Wolfspeed accounts for about 90% of the global production.
This silicon is used in the manufacturing of electric vehicles (EVs), renewable energy, power supplies and other products.
Instead, Squire argued that Wolfspeed has “a supply and ambition problem.”
He pointed out that two new planned facilities had already been held up by delays when the company announced its plans for the since-cancelled facility in Germany – which was going to be the largest and most advanced SiC device manufacturing facility in the world.
“Expansion is a great idea for a company that is executing well and reaching capacity,” Squire wrote. “Wolfspeed is doing neither right now, and announcing further expansion plans before proving that it can execute scares the market as evidenced by the stock’s performance.”
Shares of Wolf have plunged 72.7% YTD and 76% over the past 12 months.
The problem for investors when it comes to a bankruptcy filing is that it renders the investments by common shareholders essentially worthless.
That’s because creditors have the highest priority in getting paid by the company, which means shareholders will only see any money after the creditors are paid in full – and only if there is any money to spare after the bankruptcy proceedings have been completed.
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