The preliminary funding agreement requires Wolfspeed "to take additional steps to strengthen its balance sheet to better protect taxpayer funds", it said.
Wolfspeed said investment funds led by Apollo Global Management, the Baupost Group, Fidelity Management & Research Company and Capital Group have agreed to provide an additional USD 750 million of new financing.
The company, which counts General Motors and Mercedes-Benz among its customers, makes chips using silicon carbide, a more energy-efficient material than standard silicon, that are used in tasks such as transmitting power from an electric vehicle's batteries to its motors.
The department said Wolfspeed's devices are used for renewable energy systems, industrial uses and artificial intelligence applications.
Wolfspeed plans to expand its silicon carbide device manufacturing facility in Marcy, New York, and increase its production capacity by nearly 30 per cent . Both projects are part of its previously announced USD 6 billion capacity expansion plan.
The company said the investments support Wolfspeed's long-term growth plans and added it expects to receive USD 1 billion of cash tax refunds from the "48D" advanced manufacturing tax credit under the Chips and Science Act.
"We believe today's announcement is a testament to the market-leading quality of Wolfspeed products and significance of Wolfspeed to broader U.S. economic and national security interests," Wolfspeed CEO Gregg Lowe said in a statement.
Under the preliminary memorandum of terms with the Commerce Department and agreement with lenders, Wolfspeed will restructure or refinance its outstanding 2026, 2028 and 2029 convertible notes at specified intervals prior to their maturity dates.
It will also defer a total of USD 120 million in cash interest payments due prior to June 30 and raise up to USD 300 million of additional capital from non-debt sources over the next 12 months.
Its stock has slumped nearly three quarters this year, hurt by a sharp slowdown in EV demand.
Wolfspeed's new 2 million-square foot multi-billion dollar silicon carbide wafer factory in Chatham County, North Carolina, was announced in 2022. Wafers are used for making chips.
Earlier this year, the company said it was confident it would deliver wafers from the facility by summer 2025 for its own chip manufacturing needs.
The award from the USD 52.7 billion semiconductor research and production subsidy program is subject to due diligence and not yet final.
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