The conditional 30-year loan from the Department of War's Office of Strategic Capital comes with warrants for 7.5% of the company and a requirement that Wolfspeed first raise at least $750 million of its own. The stock jumped as much as 29% after hours.
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Wolfspeed's headline number is large. The fine print explains how much of it is new money and what the company has to do to get it.
After Wednesday's close, the silicon-carbide chipmaker disclosed a conditional commitment from the Department of War's Office of Strategic Capital for a senior secured term loan of up to $1.5 billion. The facility would run 30 years, with a 36-month window to draw it. Interest would be set at the Treasury rate of similar maturity plus a premium provisionally contemplated at 1.25% to 1.75%, and for the first five years interest could be added to principal rather than paid in cash. Straight-line amortization over 25 years would follow.
At up to $1.5 billion, the commitment equals about 92% of Wolfspeed's market value of roughly $1.63 billion at Wednesday's close of $31.37.
Where the money goes
The loan would come in up to four tranches. The first, $600 million, would be used on the closing date "to refinance in full the Company's outstanding first lien senior secured notes due 2030 and to pay transaction fees and expenses," according to the company's filing. That draw replaces one creditor with another.
The remaining $900 million, in tranches of $200 million to $400 million, would fund a government-specified project: silicon-carbide wafer and device capacity, domestic gallium-nitride production, gallium-nitride-on-silicon-carbide radio-frequency epitaxy and radiation hardening. The department tied the financing to "high-performance propulsion systems, directed energy weapons, drones, electronic warfare systems, radars, and missile defense systems."
What Wolfspeed must bring
Funding depends on Wolfspeed raising at least $750 million of its own "Qualifying Sources" received after , or another amount the lender sets. That is about 46% of Wednesday's closing market value. At least $150 million must come from new equity sold to investors unaffiliated with the government: $50 million before the facility takes effect and $100 million before the second tranche funds.
Other conditions include congressional authorizations, appropriations and concurrence from the Office of Management and Budget, which the company describes as "beyond the control of the Company." Wolfspeed must also use commercially reasonable efforts to convert a substantial majority of its convertible notes into equity, deliver offtake agreements acceptable to the lender, pass due diligence "to the satisfaction of OSC in its sole discretion" and obtain amendments or waivers from existing creditors. "No assurances can be made" that definitive agreements will be signed, the filing says.
The government's stake
The department would receive warrants for 5% and a further 2.5% of Wolfspeed's fully diluted equity, issued pro rata as each tranche funds, with a 10-year term and exercise prices based on a volume-weighted average to be agreed. The 7.5% is calculated excluding any shares issued to meet the $750 million contribution, so equity raised for that requirement would dilute existing holders separately from the warrants.
Ongoing terms include limits on a change of control, a board with a majority of U.S. citizens, a U.S. headquarters, rights for the department on products related to the project and a non-voting board observer. The company's new risk factor says the warrants "could result in substantial dilution" and that the government's position "reduces the voting and other governance rights of stockholders and may limit potential future transactions."
The trading
Shares began moving in the first minute after the 4 p.m. close and reached as high as $40.49 in after-hours trading, about 29% above the regular close. By early Thursday they were indicated near $36 in thin premarket trading, roughly 15% higher than Wednesday's close and about 11% below the after-hours peak.
Wolfspeed emerged from Chapter 11 on . At it reported about $1.09 billion of cash and short-term investments against $931 million of long-term debt and $756.5 million of convertible notes, net. Chief Financial Officer Gregor van Issum called the commitment "another significant milestone in our ongoing efforts to optimize Wolfspeed's capital structure."
Strategic Funding and Shareholder Dilution
One reading is that a government anchor creditor offering 30-year money at a narrow spread over Treasuries, with optional payment-in-kind interest, transforms a recently restructured balance sheet and marks Wolfspeed as strategic national-security supply.
Another reading is that the commitment is conditional, refinances first and funds new projects only after Wolfspeed raises up to $750 million, much of it potentially through new shares, while handing the government warrants, product rights and a seat in the boardroom.
What comes first
Thursday's regular session will show whether the after-hours gain holds. Because $50 million of new equity is required before the facility takes effect, an equity offering or convertible exchange is the next disclosure to watch. Definitive agreements and congressional action have no set date.