The former silicon carbide giant Wolfspeed plummeted 50%! The funding from the chip bill remains undecided, and convertible bond refinancing faces obstacles

The stock price of chip manufacturer Wolfspeed, which recently appointed a new CEO, plummeted more than 50% on Friday, hitting its lowest point since 1998. This comes at a critical moment for the company, as concerns grow that the government funding it is waiting for may not materialize. At the same time, Wolfspeed is struggling to reach an agreement with investors to restructure its $575 million convertible bonds due next year.

Media reports indicate that Wolfspeed focuses on silicon carbide materials and devices, but its financial situation has been poor in recent years, significantly impacted by a slowdown in demand from automotive customers, which has severely compressed its profitability.

Last November, Wolfspeed "without cause" dismissed former CEO Gregg Lowe and announced the closure of a 50mm chip manufacturing plant in Durham, North Carolina, planning to cut 20% of its workforce, while its stock price continued to plummet.

On Thursday, Wolfspeed announced that veteran chip industry executive Robert Feurle will take over as CEO starting May 1. The company's interim CEO and executive chairman Thomas Werner stated that Feurle has experience in optimizing factory operations, which is a capability analysts have long criticized Wolfspeed for lacking.

Feurle holds dual citizenship in Germany and the United States and recently served as an executive at German chip manufacturer ams-OSRAM, having previously worked at American chipmaker Micron. Werner noted that Feurle will be based in Durham going forward.

Waiting for Chip Act Funding Indefinitely

Meanwhile, Wolfspeed is still waiting for approximately $750 million in federal funding under the CHIPS Act. This bipartisan legislation from 2022 promised $52.7 billion in subsidies for domestic semiconductor manufacturing and production in the United States.

This funding was originally intended to cover part of the company's planned investment of over $6 billion in factories in North Carolina and New York, which also prompted Apollo Global Management to lead a $750 million financing for Wolfspeed.

However, earlier this month, former U.S. President Trump stated that Congress should repeal the act, calling it "a very bad, very terrible thing," and suggested reallocating the related funds to pay down the national debt.

Analysts believe the CHIPS Act is crucial for Wolfspeed, as the company relies on this funding to accelerate its expansion plans for silicon carbide semiconductor manufacturing. CFRA Research senior analyst Brooks Idlet stated:

"Wolfspeed's CHIPS Act funding is the largest among the grants that have not yet been formally issued before Biden leaves office, so it faces a particularly high risk of being canceled with the new administration."

Idlet pointed out that if the funding cannot be secured, "it would be a devastating blow to Wolfspeed, likely necessitating a major restructuring to preserve cash." Werner stated at a press conference on Thursday:

"We are managing the company in a way that does not overly rely on subsidies or tax incentives from the CHIPS Act."

"Of course, if we can obtain tax credits and funding from the CHIPS Act, our growth will accelerate, and we can hire more employees."

In recent weeks, Werner has made multiple trips to Washington and met with North Carolina's two federal senators, Thom Tillis and Ted Budd. The company continues to emphasize the importance of building a silicon carbide supply chain in the U.S., as this material has been designated as a critical material by the government.

Werner indicated that he expects Wolfspeed to learn about the fate of its CHIPS Act funding later this summer, although the company anticipates that the legislation will undergo some changes.

"The key is that the CHIPS Act will continue to evolve, and we are having constructive engagements with the government, so we are not at an unreachable level of communication."

Debt-to-Equity Swap? Stock Price Too Low, Almost Hopeless

To reverse the downturn, sources familiar with the matter revealed to the media that Wolfspeed is working with JP Morgan to advance restructuring efforts, hoping to reach an agreement with investors to restructure its $575 million convertible bonds maturing next year.

However, as of 1:25 PM New York time, Wolfspeed's stock price had plummeted over 50% to $2.67. Including the decline on the trading day, the company's stock price has fallen more than 59% this year. According to Ortex estimates, as of March 27, approximately 32.5% of Wolfspeed's tradable shares were in short interest. The high short ratio indicates that the market generally expects the stock to decline further.

Based on the current stock price, unless the stock price rebounds to $47.32, the conversion of bonds to shares is almost hopeless. Data compiled by Bloomberg shows that as of Friday afternoon, this batch of convertible bonds from Wolfspeed is currently trading at only 60% of its face value in the secondary market.

Wolfspeed stated in a press release on Friday:

"The company is working with advisors to continuously explore alternatives for its convertible bonds and is maintaining dialogue with lenders, including Apollo Global Management Inc. and Renesas Electronics Corp."