Wolfspeed is planning to file for bankruptcy as part of a restructuring agreement with creditors

Shares of US semiconductor firm Wolfspeed plunged by 30% on Monday after the company revealed it is planning to sign for bankruptcy as part of a restructuring exercise backed by its top lenders.

The company said it signed a restructuring deal with its top creditors to cut debt by about 70% or roughly $4.6 billion in bankruptcy filing, while it lines up new liquidity.

The market reacts swiftly to Wolfspeed’s plan

According to the Wall Street Journal, the company which makes carbide wafers and semiconductor components mostly in the US, indicated that it signed restructuring agreements with most of its senior and convertible noteholders and is also planning to ask creditors to approve the terms.

Following the news, the market also responded swiftly as the chip supplier’s shares fell 12% in premarket trading. The company has lost more than 86% on a year to date basis following a 59% plunge on initial bankruptcy rumors on May 20.

The company had recently had shifted its focus to manufacture semiconductors for drivetrains and electric vehicles (EV) charging systems.

However, Wolfspeed’s operations collided with the tight US tariffs, coupled with a slowdown in EV demand which put pressure on its balance sheet. An unsustainable debt burden forced the company to pursue this route.

“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.”

CEO Robert Feurle.

With a restructuring exercise on the pipeline, this could help the company achieve a cleaner balance sheet and a fresh runway, although equity holders face near-total dilution.

Wolfspeed targets to get fresh funding

According to the company, the restructuring exercise should see it unlock fresh financing amounting to $275 million. The plan, which was announced on June 22 is expected to reduce annual expenses by 60% and leave the existing shareholders with a reorganised equity stake of 3% and 5%.

As of 31 March this year, the chip supplier had $1.3 billion in cash enough to sustain operations as well as support customers during the restructuring exercise.

Wolfdspeed is targeting end of the third quarter of this year to emerge from the bankruptcy after a vote on its pre-packaged plan of reorganization under Chapter 11. According to Guru Focus, prepackaged plans usually speed up court approvals by negotiating terms in advance.

Wolfspeed aims to maintain its operations including serving customers as well as paying vendors as usual. Existing equity holders will receive a small percentage of new common equity, according to Tipranks. The company also recently laid off 73 workers at its Siler City facility.

Prior the bankruptcy news, Wolfspeed stock had a moderate sell consensus rating based on two Buys, four Sell and one Hold rating on Tipranks.

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