Wolfspeed gets a conditional Pentagon loan offer of up to $1.5 billion that would pay off its costliest debt

Wolfspeed, the silicon carbide chipmaker that emerged from bankruptcy just over a year ago, said Wednesday that the Department of War has offered it up to $1.5 billion in long-term loans. The money would first pay off notes that now cost the company 15.875% a year in cash interest, but the offer is conditional, and a lot has to happen before any of it arrives.

The commitment letter, from the department's Office of Strategic Capital, describes a senior secured loan that Wolfspeed could draw in up to four tranches over 36 months and repay over 30 years. The first $600 million would refinance in full the company's first-lien notes due 2030. The later tranches, of $200 million to $400 million each and up to $900 million in total, would fund the expansion program the loan is meant to support, according to a filing with the Securities and Exchange Commission made after Wednesday's close.

The debt it would replace

Those first-lien notes are the most expensive piece of the debt Wolfspeed kept when it restructured. The company filed for Chapter 11 in June 2025 and emerged on Sept. 29, 2025, with its total debt cut by about 70%. It has since bought back $175 million of the notes in December and $475.9 million in March, the second batch paid for with new convertible notes and a private share sale. About $636 million of principal was still outstanding at the end of June, and because Wolfspeed did not meet the terms for a lower rate, the notes have carried 15.875% cash interest since June 23, its annual report shows.

The government loan would be priced at a Treasury yield of similar maturity plus a risk premium provisionally set between 1.25 and 1.75 percentage points. For the first five years, as long as there is no default, Wolfspeed could add the interest to the loan balance rather than pay it in cash; after that, principal would be repaid in equal installments over 25 years. The company had $1.1 billion of cash and short-term investments at the end of June.

What shareholders would give up

As a condition of signing, Wolfspeed would issue the department warrants for 5% of its fully diluted equity plus another 2.5%, or up to 7.5% in all, handed over as each tranche is funded. Exercise prices would be based on an agreed average share price, and the warrants would run for 10 years. The filing warns that exercise would bring substantial dilution, and that the government's expected stake reduces other shareholders' voting and governance rights.

The department would also get a non-voting observer at board meetings. For the life of the loan, a majority of Wolfspeed's directors would have to be U.S. citizens, its chief executive would have to be a national of a permitted jurisdiction, its headquarters would have to stay in the United States, and changes of control would be restricted. As a secured lender, the government would also have a claim on the company's assets ahead of shareholders.

What still has to happen

The filing lists conditions, several of them outside the company's control. The department needs authorization from Congress, available appropriations and the agreement of the Office of Management and Budget. Wolfspeed has to make commercially reasonable efforts to turn a substantial majority of its convertible notes into stock, win amendments or waivers from existing lenders, sign letters of intent or supply agreements with buyers that the office accepts, and pass due diligence that is at the office's sole discretion. Those convertible notes had about $850 million of principal outstanding at the end of June.

Wolfspeed also has to bring in at least $750 million from sources outside the government over the life of the loan, starting with $50 million of new equity before the facility takes effect. The company said there can be no assurance that definitive agreements will be signed or that any financing will be provided.

Why the department wants it

Silicon carbide and gallium nitride are known as wide bandgap materials. In its announcement, the department said they go into propulsion systems, directed-energy weapons, drones, electronic warfare systems, radars and missile defense. David A. Lorch, the office's director, said the deal "advances U.S. military and economic security by helping build a secure, reliable domestic supply chain for SiC and GaN."

Wolfspeed would commit to a multi-year program to expand domestic silicon carbide wafer and power-device production, establish or bring home gallium nitride power-device production, advance gallium-nitride-on-silicon-carbide wafer technology for radio-frequency chips, and build radiation-hardening capability. "SiC and GaN have critical national security applications," Chief Executive Robert Feurle said.

The office has made conditional offers like this before. In June it signed conditional loans of $725 million with Energy Fuels and $500 million with Phoenix Tailings for rare-earth projects.

How the stock reacted

Wolfspeed shares closed down 1% at $31.37 on Wednesday, before the announcement, and were up about 22% at $38.19 in after-hours trading at 6:33 p.m. Eastern time. Shortly after the news they traded near $40, about 27% above the close. The potential loan is close to the size of the company's entire market value: the 53 million shares it reported outstanding in mid-August were worth about $1.7 billion at Wednesday's closing price.