Me again. If you’re new, go read the post on WOLF and CLF first.
Let's pre-empt the peanut gallery: there has been enormous volatility due to wars, the great Leo margin call, interest rate and inflation terrors and oil & diesel armageddon. This has nothing to do with the thesis and if you are patient and got balls this is how you make money. My thesis is correct and this is what happens next.
In June I said the government was going to put 1.5 BILLION into Wolfspeed. I pointed to the indenture covenants where the 1L noteholders agreed to let a federal lender take first priority on Siler City.
On October 7, the Department of War’s Office of Strategic Capital announced a conditional $1.5B, 30-year loan commitment to Wolfspeed.
WHERE I FUCKED UP (AGAIN, IN THE BEST WAY)
I said DoE plus CHIPS. It’s the Department of War. THAT IS EVEN BETTER.
THE BORING SHIT (read the 8-K yourself if you are an autist as well)
WOLF gets up to $1.5B in up to four tranches, available over a 30 year window.
$600M refinances the 1L senior secured notes due 2030 in full. Those are the expensive notes I told you were bleeding this company dry. The interest rate is UST plus 1.25–1.75%.
Then there are some other tranches of debt that open based on some milestones and investments that I will explain later.
In exchange, the Department of War gets warrants for up to 7.5% of the company. It can also name a non-voting board observer. The company has to keep its HQ in the US, and a majority of the board has to be US citizens blah blah blah.
THE PART I DIDN’T SEE COMING: THIS ISN’T AN AI DEAL. IT’S AN AI & WEAPONS DEAL.
I was focused on 800V data centers and solid-state transformers (SSTs) based on the DPA from April which named power control electronics and other supply chains for grid resilience as strategic priorities. What I didn't see coming was FUCKING SPACE WEAPONS. Read what the Pentagon says the money is for. Per TNW’s summary of the DoW release, it lists:
Propulsion systems, directed energy weapons, drones, electronic warfare, radar and missile defense.
Investments will be made into upgrading GaN epitaxy for electronic warfare, onshoring GaN power devices, building GaN-on-SiC RF wafers, and radiation-hardening SiC and GaN. Rad-hard means space and nuclear.
This is a list of things that are no longer commodity consumer auto parts and soon Wolfspeed will start to trade like a defense prime. I admit I was a bit caught off guard by all of this and wanted to take a couple of days to process but NOW IT ALL MAKES SENSE.
Go back to the GE Aerospace MOU from June 8. Wolfspeed supplies its 10kV MOSFET die, and the two companies co-develop high-voltage module standards for SSTs and next-gen aerospace & defense platforms. GE had already qualified high-voltage SiC power units for US military ground vehicles.
That MOU now makes sense. GE is the first prime-side customer, and the DoW loan is the government-side financing. I expect other primes to follow soon.
THE CLAUSE NOBODY READ PART 2
Last time it was Section 8.02. This time it’s the conditions precedent in the 8-K.
To sign definitive agreements, Wolfspeed must execute “one or more letters of intent or definitive offtake agreements”that OSC accepts. Every tranche after the first is also conditioned on offtake agreements. The DoW additionally gets certain rights on products related