Wolfspeed files for bankruptcy protection

[gtyellowjacket]

The “banks” aren’t losing a penny and weren’t being bailed out at any point in time. The private equity investors will make out just fine. It is the common shareholders that are getting screwed.

Please try to increase your financial literacy.

The investors of the financial firms loaned the company $5.2 billion. Based on the implied Reorganized Enterprise Value, they are receiving $500 million in new debt and 95% of the new equity, which is estimated to be worth between $1 billion and $1.5 billion. In total, they are recovering approximately $1.5 to $2 billion of their original $5.2 billion investment. As it stands, they are taking a 60% to 70% loss unless the restructured company significantly recovers in value over time.

Please try to increase your financial literacy.

 

[Calheel]

The investors of the financial firms loaned the company $5.2 billion. Based on the implied Reorganized Enterprise Value, they are receiving $500 million in new debt and 95% of the new equity, which is estimated to be worth between $1 billion and $1.5 billion. In total, they are recovering approximately $1.5 to $2 billion of their original $5.2 billion investment. As it stands, they are taking a 60% to 70% loss unless the restructured company significantly recovers in value over time.

Please try to increase your financial literacy.

The company is cash flow positive and will have very little debt. The valuation is completely theoretical. You will note that the unsecured creditors are being paid in the ordinary course of business. If the secured creditors thought this was a bad deal, they would force a liquidation. We can revisit this conversation in a few years, but there was just never any truth to your statement that the government was wasting money bailing out banks.

 

[LosPollosHermanos]

Do wolves really have that much speed? And is the name related to any woofies in the company?

If so, I'm sad it's only Chapter 11.

 

[gtyellowjacket]

The company is cash flow positive and will have very little debt. The valuation is completely theoretical. You will note that the unsecured creditors are being paid in the ordinary course of business. If the secured creditors thought this was a bad deal, they would force a liquidation. We can revisit this conversation in a few years, but there was just never any truth to your statement that the government was wasting money bailing out banks.

The company might be cash flow positive but that is mostly because they were deferring interest payments on that massive debt to the secured creditors. That's not a great deal for those bond holders with the company failing and it certainly doesn't line up with your head scratching claim that they "The private equity investors will make out just fine. "

The bondholders are making the best of a bad situation. They can either take control of a company worth perhaps $2 billion through Chapter 11 or force a liquidation and recover even less. But that doesn’t change the fundamental economic fact: the original creditors are accepting a significant loss because the company’s enterprise value no longer supports the $5.2 billion in outstanding debt.

The valuation may be “theoretical,” but so is any valuation in a bankruptcy. It still reflects a consensus view (by the company, creditors, and court) that the firm is worth far less than the original obligations. That's why creditors are getting back only ~30–40 cents on the dollar through a mix of reduced debt and equity.

And while unsecured creditors being paid is a good sign for operational continuity, it doesn’t erase the fact that the largest financial stakeholders (convertible note holders) are taking substantial losses. They’re being changed from debt holders getting interest hoping to convert that debt into equity as the company value rises into majority owners of a distressed company.

I’d agree we can revisit this in a few years to see if the equity recovery made the creditors whole but today, based on the court filings and recovery structure, they are locking in a multi-billion-dollar write-down.

Please try to increase your financial literacy.

 

[Calheel]

The company might be cash flow positive but that is mostly because they were deferring interest payments on that massive debt to the secured creditors. That's not a great deal for those bond holders with the company failing and it certainly doesn't line up with your head scratching claim that they "The private equity investors will make out just fine. "

The bondholders are making the best of a bad situation. They can either take control of a company worth perhaps $2 billion through Chapter 11 or force a liquidation and recover even less. But that doesn’t change the fundamental economic fact: the original creditors are accepting a significant loss because the company’s enterprise value no longer supports the $5.2 billion in outstanding debt.

The valuation may be “theoretical,” but so is any valuation in a bankruptcy. It still reflects a consensus view (by the company, creditors, and court) that the firm is worth far less than the original obligations. That's why creditors are getting back only ~30–40 cents on the dollar through a mix of reduced debt and equity.

And while unsecured creditors being paid is a good sign for operational continuity, it doesn’t erase the fact that the largest financial stakeholders (convertible note holders) are taking substantial losses. They’re being changed from debt holders getting interest hoping to convert that debt into equity as the company value rises into majority owners of a distressed company.

I’d agree we can revisit this in a few years to see if the equity recovery made the creditors whole but today, based on the court filings and recovery structure, they are locking in a multi-billion-dollar write-down.

Please try to increase your financial literacy.

I’ll agree they are taking a paper loss for now, but that is not unusual in a chapter 11 when you hold convertible debt and it is a hell of a lot better than the common stockholders. Keep in mind that the creditors have been paid a lot of interest already (Apollo was getting 16% interest).

But this is largely a side issue from your point that the government was “bailing out banks” by funding the chip factories. They were doing nothing of the sort. There are no banks here. Not even your new weasel term of “financial institutions” - which are entities that are regulated by the fed. There are just investors. And the government giving grants to a chip manufacturer has absolutely nothing to do with “bailing out” anyone. It is about promoting domestic manufacturing.

Bailing out banks is 2008 TARP stuff. Have no idea why you would say something like that other than to try to sound like a quasi-populist.

 

[hedge]

Please try to increase your financial literacy.

Evidently that stung you...

 

[gtyellowjacket]

I’ll agree they are taking a paper loss for now, but that is not unusual in a chapter 11 when you hold convertible debt and it is a hell of a lot better than the common stockholders. Keep in mind that the creditors have been paid a lot of interest already (Apollo was getting 16% interest).

But this is largely a side issue from your point that the government was “bailing out banks” by funding the chip factories. They were doing nothing of the sort. There are no banks here. Not even your new weasel term of “financial institutions” - which are entities that are regulated by the fed. There are just investors. And the government giving grants to a chip manufacturer has absolutely nothing to do with “bailing out” anyone. It is about promoting domestic manufacturing.

Bailing out banks is 2008 TARP stuff. Have no idea why you would say something like that other than to try to sound like a quasi-populist.

Lols. Banks. You sure do have a lot of financial literacy. I feel so fortunate to learn at the feet of a master.

Anything else you can teach me? Did I misspell something?

 

[gtyellowjacket]

Evidently that stung you...

It did seem a bit misplaced coming from him.

 

[superrific]

Lols. Banks. You sure do have a lot of financial literacy. I feel so fortunate to learn at the feet of a master.

Anything else you can teach me? Did I misspell something?

What the fuck are you even talking about? Bailouts, banks, blah blah blah. You make no sense.

Here's what happened: In reliance on an awarded grant by the US government in an amount north of $1B, the company issued notes worth $1.5B. This was exactly as planned. The whole point of these loans and grants is to jumpstart private investment. The government provides the backstop, so that private sector actors can invest against that.

Now the government is reneging on its grants. Most companies will fail if there is a sudden, illegal and unannounced withdrawal of a third of its revenues. This is what bankruptcy is for.

At no point was any company being "propped up." At no point is anyone getting bailed out. I don't even know what the fuck you think you're going on about. The company is in Chapter 11, meaning it hasn't been bailed out -- unless you think Chapter 11 is a bailout process, in which case you you are literally too stupid to follow any sort of conversation.

In bankruptcy, everyone comes out a little worse. That's the nature of bankruptcy. The whole point of bankruptcy is a) to extract as much value from the debtor as possible, and b) divide up that value among creditors, all of whom are going to be put in a worse situation. This type of reorganization is normal and common. Ideally, the principal value of the notes are not written down, and the reorg is simply a matter of extending the maturities on debt (which isn't what the creditors want), but sometimes when there's actual insolvency (as opposed to mere illiquidity) write downs are required. That is not a bug in the process.

The entire story goes like this:

1. Biden and Dems pass legislation to fund private investment in technology. You know, an effective way of doing what Trump is always blathering about.
2. A company gets a billion dollar award
3. On the basis of that billion dollars, the company solicited additional debt, which was provided in the form of convertible debt (note: you haven't engaged with that aspect of the situation at all, prob because you fail to understand it).
4. The government reneged on the $1B
5. The company cannot pay its bills.

This is all. There's nothing else. No banks. No bailouts. Nothing but the entirely predictable, indeed unavoidable result, of the government stiffing companies that it owes money.

 

[superrific]

(Apollo was getting 16% interest).

On convertibles? Really? I've never heard of that. Was this before or after the grant?

 

[Carolina Fever]

Does this company have any connection with NC State? Just wondering because of the name.

 

[JCTarheel82]

Does this company have any connection with NC State? Just wondering because of the name.

Five of the six co-founders are lol grads.

 

[superrific]

The company might be cash flow positive but that is mostly because they were deferring interest payments on that massive debt to the secured creditors. That's not a great deal for those bond holders with the company failing and it certainly doesn't line up with your head scratching claim that they "The private equity investors will make out just fine. "

The bondholders are making the best of a bad situation. They can either take control of a company worth perhaps $2 billion through Chapter 11 or force a liquidation and recover even less. But that doesn’t change the fundamental economic fact: the original creditors are accepting a significant loss because the company’s enterprise value no longer supports the $5.2 billion in outstanding debt.

The valuation may be “theoretical,” but so is any valuation in a bankruptcy. It still reflects a consensus view (by the company, creditors, and court) that the firm is worth far less than the original obligations. That's why creditors are getting back only ~30–40 cents on the dollar through a mix of reduced debt and equity.

And while unsecured creditors being paid is a good sign for operational continuity, it doesn’t erase the fact that the largest financial stakeholders (convertible note holders) are taking substantial losses. They’re being changed from debt holders getting interest hoping to convert that debt into equity as the company value rises into majority owners of a distressed company.

I’d agree we can revisit this in a few years to see if the equity recovery made the creditors whole but today, based on the court filings and recovery structure, they are locking in a multi-billion-dollar write-down.

Please try to increase your financial literacy.

None of this shit makes any sense. God, I can't imagine the humiliation you must face on a daily basis. Let me know if you need help with digital coupons at Kroger, and please try not to berate the manager helping you just because you can't figure it out.

1. Bond holders charge interest because they take risk in extending a loan. They are often not made whole in bankruptcy. This has been a daily occurrence in the century since the Bankruptcy Act was passed.

2. Bankruptcy is about making the best of a bad situation. You're arguing against . . . businesses failing, I guess? Cool. You must have perfect prognostication skills, anticipating in every case whether a debtor company will or won't meet its obligations. Do you have any other forms of clairvoyance we should know about? Do you talk to ghosts? Aliens?

3. The debt holders negotiate for convertible bonds. They actually pay for the privilege. LOL that you don't know that. The debt holders WANT to convert to equity; that's why they negotiated for it. Yeah, they were hoping to have equity in a booming company and not one in reorg, but that's the risk that the investors took.

And it's their choice whether to take "substantial losses." This is the fundamental nature of all PE and VC investment. They invest in firms with unsteady cash flows. They are never planning to get their money back from the notes. The payoff is the equity conversion.

In most VC transactions, in fact, the investors get preferred equity, which is like debt except there is no legal obligation to pay. Why? Because they (meaning the company and the investors) do not want anyone putting the company in bankruptcy while it's in its growth stage. Taking "substantial losses" and then recovering from them is literally the point.

4. You are fucking clueless about all things related to finance, so it's amazingly rich to see you spouting off at Calheel. You going to accuse me of financial illiteracy as well? I would say that it's not your fault you were born stupid, but I'm confident that your stupidity was a conscious choice.

 

[chrissteel]

The issue also was did what they make qualify for the CHIPS act - biden said yes trump folks no. And i believe some of their proposed output was contracted to a german company for EV production.

The Act primarily targets semiconductor device fabrication plants ("fabs")—factories that assemble, test, or package semiconductors. In contrast, Wolfspeed’s Chatham County facility produces silicon carbide (SiC) wafers—a materials-production site—not semiconductor devices. Because of this, key parts of the CHIPS grant program designated "advanced manufacturing facilities" may not include wafer-making plants

 

[superrific]

The issue also was did what they make qualify for the CHIPS act - biden said yes trump folks no. And i believe some of their proposed output was contracted to a german company for EV production.

The Act primarily targets semiconductor device fabrication plants ("fabs")—factories that assemble, test, or package semiconductors. In contrast, Wolfspeed’s Chatham County facility produces silicon carbide (SiC) wafers—a materials-production site—not semiconductor devices. Because of this, key parts of the CHIPS grant program designated "advanced manufacturing facilities" may not include wafer-making plants

Once Biden said yes and awarded the grant, Trump has no right to say no. The obligations must be paid. When they are not, this is what happens.

It's amazing that you motherfuckers suckle at Trump's giant man-tits so much that you're now in the business of disparaging private companies that get shafted by the government.

 

[King Hippo]

Five of the six co-founders are lol grads.

This explains everything.

 

[chrissteel]

Once Biden said yes and awarded the grant, Trump has no right to say no. The obligations must be paid. When they are not, this is what happens.

It's amazing that you motherfuckers suckle at Trump's giant man-tits so much that you're now in the business of disparaging private companies that get shafted by the government.

I agree the government should have kept it's commitment, just trying to add some context to the issue. Another issue is that a Chinese company beat them to the market and expanded the wafer industry capacity 30% killing their profit outlook. In looking at other sources it is clear the company had no definitive agreement in the first place just good indications. The grant is still possible but less likely , especially considering how the market has change.

I hope they get it and prove successful as i live in the area and we could use some additional good jobs. One of the problems has been getting local utilities services n order that did delay the project a little as building phases were done out of sequence to all the utilities to catch up.

Siler City continues to violate Clean Water Act, wants reprieve so Wolfspeed can build its major computer chip plant • NC Newsline

The Town of Siler City, whose wastewater treatment plant has chronically violated the Clean Water Act, is asking state regulators for a reprieve so a major computer chip manufacturer can build and operate its factory there. Siler City has filed for a “Special Order by Consent” with the NC...

ncnewsline.com

 

[gtyellowjacket]

Five of the six co-founders are lol grads.

Yep. And more than that it was actually spun out from NC State. The university, and by extension, the NC taxpayer was receiving licensing fees based on research at the University and may still be.

 

[superrific]

Another issue is that a Chinese company beat them to the market and expanded the wafer industry capacity 30% killing their profit outlook.

Yeah, that's been happening a lot. Because China has an industrial policy. The point of the CHIPs Act was to do the same for America. Let the government provide some early stage venture financing because the private sector VC ignores critical sectors (among other reasons).

People are going back to the Solyndra stupidity. Yes, Solyndra was an investment that didn't pan out. There were other companies who were funded by that provision. One of them was called Tesla. If you look at any portfolio

The reason that China has built out its industrial capacity is that it funds everyone with a decent business plan. Plenty of the Chinese firms fail. But now they have built out a massive industrial juggernaut.

 

[chrissteel]

And asia is burning more coal that the whole world did 10, check that 9, years ago.