Key points
- The Department of War offered Wolfspeed a conditional loan of up to $1.5 billion
- The terms require at least $750 million in qualifying company contributions
- The government would get warrants for up to 7.5% of the company
Wolfspeed (WOLF) could borrow up to $1.5 billion under a conditional commitment from the Department of War's Office of Strategic Capital, announced October 7. Its shares jumped about 23% in after-hours trading, reaching $38.56 at 5:40 p.m. ET from a $31.40 close.
But Wolfspeed has several conditions to meet before it gets the money. Neither press release went far into those details, so I read the 8-K filed that day. It spells out the fundraising requirements, debt conversions, and stock warrants behind the headline loan figure.
What would the money pay for?
Wolfspeed makes silicon carbide wafers and power chips. Silicon carbide and gallium nitride are "wide bandgap" materials. The department's release says they go into drones, radars, electronic warfare systems, and missile defense.
The loan would arrive in up to four pieces. The first $600 million would pay off Wolfspeed's first-lien notes due 2030 in full, plus fees. The remaining $900 million would come in chunks of $200 million to $400 million. It would fund what the filing calls the Project: more silicon carbide production in the U.S., new or onshored gallium nitride production, gallium nitride-on-silicon carbide wafers for radio frequency chips, and radiation-hardened parts.
It's a 30-year loan with three years to draw it down. The rate is expected to be the Treasury rate for a similar maturity plus a premium provisionally set at 1.25 to 1.75 percentage points. For the first five years, Wolfspeed could add the interest to the loan balance instead of paying it in cash.
What does Wolfspeed have to do first?
Wolfspeed must contribute at least $750 million through qualifying sources, unless the office sets a different requirement. Eligible amounts raised after June 28, 2026, count toward that total. Most of it can come from stock sales, debt converted into equity, or excess cash.
The terms specifically require $150 million from new shares sold to nongovernment investors: $50 million before the loan takes effect and another $100 million before the second installment is funded.
Wolfspeed must also make "commercially reasonable efforts" to convert most of its convertible notes into stock. It must also secure customer purchase commitments acceptable to the office. The department needs approvals from Congress and the Office of Management and Budget, steps the filing says are beyond Wolfspeed's control.
Other conditions would last for the life of the loan. Wolfspeed would have to keep its headquarters in the U.S. and a majority-U.S.-citizen board. The office could also appoint a non-voting observer to board meetings.
What does the government get?
Warrants, which are rights to buy stock later at a set price. The department would get warrants for 5% of Wolfspeed's fully diluted equity at one price and 2.5% at another. Both prices would be based on a volume-weighted average of Wolfspeed's share price, an average that gives more weight to heavier trading days. They'd be issued as each piece of the loan is funded and last ten years.
One detail is easy to miss. That 7.5% is calculated without the new shares Wolfspeed would sell to meet the $750 million requirement, so those sales would add dilution for existing shareholders on top of the warrants.
The office has made several of these conditional commitments this year, including up to $820 million to Performance Drone Works in July. Wolfspeed's 8-K says plainly that there can be no assurance a final agreement gets signed, so for now this is the outline of a deal, with a lot of steps between here and the first dollar.
