Why Wolfspeed Stock Is Skyrocketing Today

Key Points

• Wolfspeed stock is roaring higher today following news that its corporate restructuring plan has been approved in court.

• The restructuring will reduce debt by approximately 70%, but it remains to be seen how things will shake out for current shareholders.

• Even after the restructuring, soft sales demand and poor margins will likely continue to be big near-term challenges for the new Wolfspeed.

• 10 stocks we like better than Wolfspeed ›

Wolfspeed (NYSE: WOLF) stock is seeing explosive gains in Tuesday's trading. The silicon-carbide (SiC) chip specialist's share price was up 42.9% as of 3 p.m. ET and had been up as much as 59.7% earlier in the session.

Wolfspeed's valuation is rocketing higher today following an announcement that approval for its restructuring plan has been granted in bankruptcy court. Despite the huge pop, the stock is still down approximately 73.5% year to date.

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Wolfspeed stock soars on big bankruptcy news

After the market closed yesterday, Wolfspeed published a press release stating that it expects to complete its restructuring and emerge from Chapter 11 bankruptcy protections within the next several weeks. The restructuring will allow the SiC specialist to reduce its debt by approximately 70% and should provide the restructured corporate entity with a much greater degree of financial flexibility.

What's next for Wolfspeed?

As part of its restructuring, ownership of the current version of Wolfspeed's key assets is being transferred to Renesas and other large holders of the company's debt. Current holders of the company's common stock will receive between 3% and 5% of the value of the new corporate entity. The stock could see more big moves in conjunction with the completion of the restructuring and revaluation of the new entity.

While a dramatic reduction of debt looks like a good thing for the continuance for the production of SiC technologies at Wolfspeed's existing facilities, the restructured company will likely face many of the same challenges that led to the current version of the company filing for Chapter 11 bankruptcy protections. Demand for SiC chips could rise significantly over the long term, but recent demand trends have not been encouraging -- and its gross margin has been very disappointing.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Wolfspeed. The Motley Fool has a disclosure policy.