Stock Fall for Wolfspeed Today: Reasons Explained
Wolfspeed, a specialist in silicon-carbide technology, is on the brink of exiting Chapter 11 bankruptcy protections following a significant corporate restructuring. The restructuring, however, does not guarantee a positive outcome for current shareholders.
The restructuring will result in a substantial change for Wolfspeed's stock, with current holders of the company's common stock receiving between 3% and 5% of the value of the new company. This means that the odds for current shareholders coming out ahead aren't necessarily favorable after the restructuring.
The decline in Wolfspeed's stock is linked to meme stock trading, with some investors placing bets on other meme stock plays, contributing to Wolfspeed's share price growth. However, despite the recent slide, Wolfspeed's stock is still up approximately 68% over the past month.
The restructuring will transfer a large amount of debt to large debt holders, including prior senior bondholders with over 97% approval and convertible bondholders with over 67% support. These creditors significantly reduced the company's debt by about 70%, nearly $4.6 billion, and convertible bondholders assume majority equity ownership and provide $275 million in new subordinated convertible notes.
The restructuring does not address the issues of weak demand and negative gross margin in the underlying business. Despite the broader market's slight growth (S&P 500 up 0.3% and Nasdaq Composite up 0.4%), Wolfspeed's stock valuation is contracting. As of 2:15 p.m. ET on Friday, Wolfspeed's stock is experiencing a significant drop in trading, down 10.4%.
Big valuation pullbacks on the heels of recent rallies are not surprising in the context of meme stock trading. The recent gains in Wolfspeed's stock are associated with the company's impending exit from Chapter 11 bankruptcy. However, the restructuring does not guarantee that current stockholders will come out ahead.
In conclusion, Wolfspeed's corporate restructuring will result in a significant transfer of debt and equity ownership, but it does not guarantee the removal of all debt from Wolfspeed or a positive outcome for current shareholders. Investors are advised to exercise caution when considering investments in Wolfspeed's stock.
