(Reuters) -Wolfspeed will be taken over by creditors including Apollo Global Management under a proposal that would put the struggling chipmaker into bankruptcy, Bloomberg News reported on Wednesday, citing people familiar with the plan.

The company will soon announce a deal for a so-called prepackaged bankruptcy, that would be long enough to slash billions in debt, the report said. After a restructuring support agreement is signed, Wolfspeed will ask creditors to vote on the plan and then file for Chapter 11 bankruptcy protection.

Shares of Wolfspeed, which makes chips using silicon carbide — a more energy-efficient material than traditional silicon, rose about 3% to $1.29 on Wednesday. The stock had fallen about 81% so far this year.

Wolfspeed and Apollo did not immediately respond to Reuters requests for comment.

The chipmaker raised going-concern doubts earlier in May, as deepening economic uncertainty stemming from changing U.S. trade policies, combined with weakening demand, triggered a series of financial challenges for the company.

As of March, the company had about $1.33 billion in unrestricted cash, cash equivalents and short-term investments, and about $6.5 billion of debt obligations, it said in a regulatory filing in May.

In a prepackaged bankruptcy, companies and their creditors agree on a reorganization plan prior to the bankruptcy filing and creditors even vote on the plan.

Shareholders could recover as much as 5% in the proposed scenario, the report said. In a typical bankruptcy, shareholders are usually wiped out because creditors must be paid first, and there often is not enough value left for equity holders.

In 2023, Wolfspeed announced $1.25 billion in debt financing led by Apollo, with the option to increase the total to as much as $2 billion to support the company's U.S. expansion plans.

(Reporting by Jaspreet Singh in Bengaluru; Editing by Shailesh Kuber)