WeWork's major investors including SoftBank, its largest, aren't giving up on the money-losing company.
The global flexible workspace provider is cutting its debt by $1.5 billion and getting over $1 billion in new funding and capital commitments after deals with an ad hoc group of investors that owns 60% of its public bonds and includes BlackRock, as well as with SoftBank and a third-party investor.
The company's future involves less debt owed to SoftBank, which is increasing its equity stake through a debt conversion.
The deals involve converting to equity about $1 billion of SoftBank unsecured notes as well as extending WeWork’s remaining debt maturity to 2027 from 2025, WeWork said Friday in a statement, adding that it will have net debt of less than $2 billion at the close of the transactions. The $1 billion-plus new funding and capital commitments it's getting include $175 million in new capital commitments and $300 million in rolled capital commitments, WeWork said.
Besides BlackRock, the ad hoc group also includes investors such as King Street Capital Management and Brigade Capital Management, WeWork said.
The agreement will “significantly deleverage capital structure and bolster liquidity for continued growth” at WeWork, the company said in the statement. It “builds on significant business progress underpinned by increased revenue, improved physical occupancy and expanding market share.”
A WeWork spokesperson declined to comment to CoStar News beyond what’s in the statement.
WeWork’s financial restructuring comes as it recently reported its fourth-quarter physical occupancy at consolidated locations worldwide rose to 75% — its highest level in at least two years. While the New York-based company posted a loss for the quarter, it said adjusted earnings before interest, tax, depreciation and amortization turned positive in December for the first time since it was founded in 2010.
WeWork CEO Sandeep Mathrani, who joined in 2020, has been cutting costs in a bid to turn around the money-losing company. He’s repeatedly said WeWork is poised to be a beneficiary of growing flexible office demand from businesses pondering the amount and type of offices they need in the face of evolving remote and hybrid work patterns.
“Sandeep's plan is working,” Piper Sandler analyst Alexander Goldfarb said in a report earlier this month. “He has grown revenues, cut expenses, dramatically culled the legacy overstaffing (14k employees to less than 3k), and pruned the portfolio as corporate credit guarantees expire.”
As WeWork stock has slumped to about $1 a share, the deals with its major investors also eased concerns from reports that WeWork may file for bankruptcy protection, especially against the backdrop of higher interest rates and looming recession worries. The tech sector layoffs, meanwhile, have hurt some of WeWork’s locations even though Mathrani has said it has a “pipeline” to replace them.
“Bankruptcy is not in the cards,” because it would cost at least $100 million in fees, Goldfarb said in the report. “It doesn't solve anything that can't be solved directly with its largest debt and equity holder, Softbank … [WeWork] has sufficient liquidity.” SoftBank owns about 55% of WeWork’s $3.5 billion debt that was due in 2025, the analyst said.
WeWork became a publicly traded company in 2021. That followed a failed attempt at an initial public offering in 2019 amid corporate governance concerns that led to the ouster of its co-founder and former CEO Adam Neumann.