Wolfspeed’s Prepackaged Bankruptcy: Strategic Restructuring in the Semiconductor Power Sector

Prepackaged Bankruptcy Mechanics

The restructuring follows a prepackaged Chapter 11 model where creditors approve reorganization terms before formal bankruptcy filing[1][2][14]. This approach—distinct from conventional bankruptcies—allows Wolfspeed to expedite court proceedings by securing creditor votes during the pre-filing period[2][14]. Under U.S. bankruptcy rules (11 U.S.C. § 1126), the company must secure approval from two-thirds of voting creditors and majority dollar exposure to implement the prepackaged plan[14]. The accelerated timeline potentially enables Wolfspeed to emerge from bankruptcy within 3-9 months versus 12-24 months in traditional proceedings, minimizing operational disruption[14]. However, this strategy carries execution risk should creditors withhold approval, forcing the company into conventional bankruptcy where shareholder recovery becomes unlikely[2].

Unconventional Stakeholder Considerations

In a remarkable deviation from standard bankruptcy protocols, the proposed framework includes up to 5% equity recovery for shareholders—an arrangement virtually unprecedented in corporate restructurings of this scale[2][6][8]. This concession likely reflects creditors’ assessment that shareholder approval might facilitate smoother implementation and potentially mitigate litigation risk. Simultaneously, unsecured creditors including suppliers appear positioned for full repayment, preserving critical supply chain relationships during the transition[2]. The structure effectively creates a three-tier stakeholder outcome: secured creditors (Apollo consortium) assume control, unsecured trade creditors receive full recovery, and shareholders retain symbolic residual interest—a carefully calibrated distribution of pain that contrasts with typical absolute priority rule applications.

Strategic Drivers and Operational Context

Production Challenges and Market Pressures

Wolfspeed’s financial distress stems fundamentally from operational setbacks at its Mohawk Valley, New York fabrication facility, where silicon carbide wafer production yields failed to meet targets throughout 2024-2025[6][15]. These production constraints coincided with softening demand in electric vehicle markets—which represent over 60% of Wolfspeed’s revenue base—as automakers including Mercedes-Benz and GM recalibrated EV production schedules[5][15]. The convergence of internal execution challenges and external market deterioration created a perfect storm: quarterly losses reached $282 million in Q1 2025 while the stock plummeted 81% year-to-date to historic lows below $1 per share[5][7][15]. This deterioration necessitated aggressive cost reduction including 20% workforce reductions and closure of the Durham materials facility, but these measures proved insufficient against the debt overhang[15].

Government Funding Uncertainties

The Trump administration’s review of CHIPS Act allocations introduced critical uncertainty into Wolfspeed’s financial projections[4][5]. Despite signing a non-binding preliminary memorandum for $750 million in CHIPS funding in October 2024, the company had received only $192 million in Section 48D tax credits by March 2025—far below the anticipated $1 billion[3][4][12]. This $808 million funding gap undermined the capital structure assumptions underpinning Wolfspeed’s expansion strategy. The company’s regulatory filings explicitly acknowledge “active discussions” with the Department of Commerce regarding the award’s status under the new administration, creating additional restructuring complexity[4]. The unresolved status of federal support represents both a financial vulnerability and potential future upside should negotiations conclude favorably post-restructuring.

Leadership and Strategic Pivot

CEO Robert Feurle’s appointment in May 2025 signaled a strategic pivot beyond automotive markets toward diversification into AI data centers and renewable energy applications[5]. This repositioning acknowledges the cyclical vulnerability of automotive exposure while leveraging Wolfspeed’s core silicon carbide technology in adjacent high-growth markets. Feurle’s early communications emphasize “turning factories into cash flow” through operational discipline—a marked departure from predecessor Gregg Lowe’s capacity expansion focus[5][15]. The leadership transition included board restructuring and CFO Neill Reynolds’ impending departure, creating a clean slate for the post-bankruptcy entity. This management realignment likely facilitated creditor confidence in the prepackaged approach despite the company’s going concern warning issued just weeks before the bankruptcy announcement[5][13].

Industry Implications and Market Analysis

Silicon Carbide Market Dynamics

Wolfspeed’s restructuring occurs during a pivotal phase in the silicon carbide (SiC) semiconductor market, where global demand is projected to grow at 34% CAGR through 2030 despite near-term automotive softness. The company’s production struggles created supply gaps that competitors including STMicroelectronics and ON Semiconductor have exploited, eroding Wolfspeed’s first-mover advantage in 200mm wafer technology. The bankruptcy-induced operational uncertainty threatens to accelerate customer dual-sourcing strategies, potentially causing permanent market share erosion. However, Apollo’s willingness to support restructuring suggests creditors perceive enduring value in Wolfspeed’s materials science IP portfolio and DOE-certified production facilities—assets that remain strategically vital for U.S. semiconductor sovereignty ambitions despite current financial distress.

Private Equity’s Evolving Semiconductor Strategy

Apollo’s leadership in this restructuring extends the firm’s deepening involvement in semiconductor finance, building upon its $1.25 billion 2023 debt financing to Wolfspeed that included provisions for expansion to $2 billion[8][13]. This transaction represents a maturation of private equity’s approach to semiconductor investments beyond traditional buyouts toward structured credit solutions for capital-intensive manufacturers. The prepackaged bankruptcy model—rarely applied in semiconductor contexts—signals creditors’ confidence in the underlying asset value despite operational missteps. Apollo’s deployment of Moelis for restructuring advice further demonstrates sophisticated financial engineering tailored to high-tech manufacturing’s unique characteristics, potentially establishing a template for future semiconductor interventions.

Geopolitical and Industrial Policy Dimensions

The restructuring unfolds against heightened U.S.-China semiconductor tensions and the Trump administration’s industrial policy reevaluation. Wolfspeed’s status as a CHIPS Act beneficiary positions the bankruptcy as a test case for government-commercial partnership viability during financial distress. The company’s continued “constructive dialogue” with the White House suggests potential alignment between creditor objectives and administration priorities regarding domestic semiconductor resilience[4]. Notably, the restructuring preserves Wolfspeed’s eligibility for federal support by maintaining critical technology assets under U.S. control—a strategic consideration likely influencing Apollo’s approach. This delicate balance between creditor recovery and national industrial objectives represents a novel dimension in semiconductor financial restructuring.

Implementation Challenges and Forward Trajectory

Creditor Coordination Complexities

The multi-creditor structure introduces significant coordination challenges during the voting phase. While Apollo leads the secured lender group, the $2 billion Renesas position creates competing priorities between financial creditors and strategic partners[2][4]. The prepackaged approach requires near-unanimous creditor alignment to avoid collapsing into traditional bankruptcy where shareholder recovery would evaporate[2]. Historical precedents suggest such coordination proves particularly challenging when creditor constituencies hold divergent time horizons and strategic objectives. The 60-day voting window following the restructuring support agreement signing represents a critical vulnerability period where holdout creditors could derail the entire prepackaged structure[1][2].

Operational Continuity Risks

Maintaining production stability during the bankruptcy transition presents acute challenges given the sensitivity of semiconductor manufacturing to supply chain confidence. While the plan proposes full repayment of unsecured vendors, the bankruptcy filing itself may trigger contractual remedies among customers concerned about long-term supply assurance. The Mohawk Valley fab’s operational fragility compounds these risks—any production interruption during proceedings could permanently damage customer relationships. Apollo’s operational due diligence presumably assessed these vulnerabilities, but the unprecedented nature of a major semiconductor manufacturer in prepackaged bankruptcy leaves residual execution uncertainty.

Post-Restructuring Strategic Positioning

Under Apollo stewardship, Wolfspeed will likely pursue a capital-light model emphasizing technology licensing and strategic partnerships over vertical integration. The creditor consortium’s industrial expertise suggests potential operational improvements through: 1) Renesas supply agreement optimization; 2) selective fab outsourcing; and 3) accelerated 200mm yield enhancement programs. The restructured entity may also divest non-core assets including the Siler City materials facility where 73 layoffs were announced

https://www.investing.com/news/stock-market-news/wolfspeed-nears-bankruptcy-deal-with-apollo-and-other-lenders--bloomberg-93CH-4101604, https://www.businesstimes.com.sg/companies-markets/telcos-media-tech/chipmaker-wolfspeed-nears-bankruptcy-deal-lenders-including-apollo, https://www.wolfspeed.com/company/news-events/news/wolfspeed-announces-750m-in-proposed-funding-from-us-chips-act-and-additional-750m-from-investment-group-led-by-apollo-galvanizing-global-leadership-in-delivering-next-generation-silicon-carbide/, https://www.wolfspeed.com/company/news-events/news/wolfspeed-provides-update-on-steps-to-strengthen-capital-structure/, https://www.axios.com/local/raleigh/2025/05/21/wolfspeed-close-to-filing-for-bankruptcy-report-wall-street-journal, https://www.itiger.com/news/2544390314, https://www.investopedia.com/wolfspeed-stock-plummets-70-percent-on-report-firm-preparing-to-file-for-bankruptcy-11739064, https://telecom.economictimes.indiatimes.com/amp/news/devices/wolfspeeds-financial-crisis-creditors-including-apollo-near-bankruptcy-deal/121942644, https://seekingalpha.com/news/4459439-wolfspeed-close-to-bankruptcy-deal-with-lenders-including-apollo-report, https://www.tradingview.com/news/reuters.com,2025:newsml_FWN3SL138:0-chipmaker-wolfspeed-nears-bankruptcy-deal-with-lenders-including-apollo-bloomberg-news/, https://www.itiger.com/news/2544903991, https://www.plantservices.com/industry-news/news/55240835/wolfspeed-receives-750m-from-the-chips-act-to-complete-greenfield-us-capacity-expansion-plan, https://www.investing.com/news/stock-market-news/wolfspeed-gains-as-largest-debt-holder-look-at-restructuring-4042898, https://www.investopedia.com/terms/p/prepackagedbankruptcy.asp, https://www.carolinajournal.com/wolfspeed-layoffs-at-its-siler-city-materials-factory/

Get M&A headlines on X!