Wolfspeed (NYSE: WOLF), the maker of silicon carbide and gallium nitride power chips, has a conditional commitment for up to $1.5bn of 30-year debt from the Department of War (the Pentagon), but its shares gave back an early jump yesterday. The company announced the proposed loan on Wednesday.
The stock opened yesterday at $35.02, up 11.6% on Wednesday’s close of $31.37, and touched $35.94. It closed at $31.02, down 1.1%, on 22.7m shares traded against 7.4m in the previous session.
The letter comes from the Department of War’s Office of Strategic Capital. It covers a senior secured delayed-draw term loan, meaning money is drawn in stages, in up to four tranches. The first would be $600m, with the remaining $900m split into tranches of $200m to $400m.
The first tranche would repay Wolfspeed’s first lien senior secured notes due 2030 in full, swapping nearer-dated secured debt for a 30-year facility. Later tranches would fund US silicon carbide wafer and power device capacity and domestic gallium nitride production.
Interest would be the Treasury rate of similar maturity plus a provisional 1.25% to 1.75%, and it may be capitalised, added to the balance, for the first five years.
The conditions are extensive. Congressional authorisations and appropriations are needed, and the company must use commercially reasonable efforts to convert a substantial majority of its convertible notes into equity. Funding also requires at least $750m of qualifying capital contributions received after the 28th of June, acceptable offtake agreements (customer purchase commitments) and due diligence at the lender’s sole discretion. The Department of War would receive warrants for up to 7.5% of fully diluted equity.
We believe the scale and 30-year tenor of this conditional commitment reflects the long-term importance of the technology and manufacturing capabilities Wolfspeed has built in the United States.
Robert Feurle, Wolfspeed
The fade is likely to reflect the dilution from conversions, equity raising and warrants, and the conditions attached, though the company has not said so. Its filing says no assurances can be given that definitive agreements will be signed, and that without funding it may need to reduce the scope of operations unless it finds alternative financing.
Wolfspeed’s next results are due on the 4th of November. In August it reported a June-quarter loss of $2.44 a share against an estimate of $1.46.
