Wolfspeed Shares Rise on Imminent Bankruptcy Exit

Wolfspeed (NYSE: WOLF) shares advanced 5.8% on Tuesday, September 17, 2025, extending a week-long surge of 115%. This significant market movement follows the approval of the company's plan to exit Chapter 11 bankruptcy. The U.S. Bankruptcy Court for the Southern District of Texas sanctioned a restructuring plan designed to eliminate approximately $4.6 billion in debt, a crucial step enabling the semiconductor firm to emerge from bankruptcy within weeks.

Debt Restructuring Details and Market Reaction

Wolfspeed officially filed for Chapter 11 bankruptcy on June 30 due to substantial debt burdens that impeded normal operations. The approved reorganization plan entails a 70% reduction in its total debt, alongside a projected 60% decrease in annual interest expenses. This deleveraging received broad support, with over 97% approval from senior note holders and two-thirds from convertible note holders. The stock's performance reflects an initial period of investor optimism regarding the significant debt write-downs and the alleviation of immediate financial pressures. Prior to this restructuring, Wolfspeed shares had experienced a sharp decline, plummeting over 80% year-to-date from approximately $8 per share to $0.388 by the end of June.

Broader Context and Operational Challenges

While the debt reduction provides Wolfspeed with critical financial flexibility, the company continues to navigate a challenging market landscape. Wolfspeed specializes in silicon carbide (SiC) technologies, which are essential for high-growth sectors such as electric vehicles (EVs) and renewable energy infrastructure. The company's chips are particularly well-suited for the power requirements of EVs, a market that has recently experienced a slowdown. This deceleration in EV sales presents a significant hurdle for Wolfspeed's future revenue streams, tempering some of the initial market euphoria surrounding its debt restructuring. Existing equity holders will experience substantial dilution, receiving only 3-5% of the new common equity, with creditors taking the majority.

Operationally, Wolfspeed has faced challenges including persistent weak yields in its 8-inch silicon carbide device production and intense competition, particularly from Chinese manufacturers. The company has reported negative EBITDA and gross margins in recent periods. The restructuring is intended to provide the financial runway needed to address these issues and scale its Mohawk Valley fabrication facility, which is critical for its long-term growth strategy. Robert Feurle, Chief Executive Officer of Wolfspeed, stated, "We believe that strengthening our capital structure will help us to shape Wolfspeed into a leader in its industry... We look forward to emerging with the financial flexibility to move swiftly on our strategic priorities."

Expert Commentary and Future Outlook

Analysts have noted the positive impact of the restructuring. Seeking Alpha analysts expressed optimism, stating that the restructuring "significantly reduces balance sheet risk and buys time for recovery." They highlight that the debt reduction allows Wolfspeed to push its Mohawk Valley fab towards scale, which is crucial for achieving high-margin contracts in the SiC industry. The long-term demand for SiC remains robust, with industry forecasts projecting the SiC device market to reach $11-14 billion by 2030, largely driven by EV adoption.

Looking ahead, key factors for Wolfspeed's recovery and sustained growth include successfully scaling its Mohawk Valley 200mm wafer fab, aiming to increase the 200mm substrate yield to above 80% by 2026. The company also anticipates external funding, including a proposed $750 million direct subsidy from the U.S. Department of Commerce, to support production expansion. Despite the positive financial reorganization, the pace of recovery in the global EV market and intense competition will remain critical determinants of Wolfspeed's long-term performance and stability.