Weeks after the failure of what had been expected to one of 2019’s biggest initial public offerings, WeWork is reported to be scrambling for a multi-billion dollar bailout package as media reports indicate the office sharing giant could run out of cash as early as next month.
With the co-working firm putting together a restructuring package with its biggest investor, Softbank, which has already put more than $10 billion into the New York-based company, is said to be demanding control of the We Company, parent of WeWork, in a move which would further displace recently ousted CEO Adam Neumann from involvement in the company he founded in 2010.
Reports from the Wall Street Journal, Financial Times and other outlets within the past few days indicate that WeWork’s board is also in talks with JP Morgan Chase, which had been leading the failed IPO effort, about arranging a debt financing package which might be used in lieu of, or in addition to, a potential equity sale.
Reports indicate that WeWork hopes to conclude its new financing this week, although sources cited by the Wall Street Journal emphasised that no deal had yet been reached, and that it is possible that the current talks may end without an agreement on new funding.
Softbank Stars in Share Sale Talks
Softbank, which is currently the biggest shareholder in the We Company with a 29 percent stake, appears to be the lead figure in the bailout, with a Wall Street Journal account indicating that the loss-making shared office provider is estimated to need $3 billion to survive through the end of 2020.
WeWork’s IPO, which new co-CEO’s Artie Minson and Sebastian Gunningham officially pulled on September 30th, was planned to raise at least $3 billion and the company had lined up a $6 billion debt package that was contingent on a successful public offering.
Softbank, which invested $2 billion in WeWork during January this year at a $47 billion valuation, is in line to get a slightly better deal in October than it did earlier in the year, with the Journal indicating that the new share sale may take place with the company priced at less than $10 billion.
The proposed bailout by Softbank would take the venture capital firm’s stake in WeWork to more than 50 percent, according to the Financial Times, and would also involve Neumann relinquishing his controlling interest in the troubled firm. Under the terms of earlier equity sales the company’s former CEO still holds shares with ten times the voting rights of common stock
For Neumann, the sale of his existing stock to Softbank could provide cashflow as the now former billionaire works to restructure his financial obligations after borrowing hundreds of millions of dollars against WeWork stock. In recent days the company co-founder is said to have been holding his own negotiations with JP Morgan regarding fresh credit after Forbes last week revised Neumann’s estimated personal wealth downward from $4 billion to $600 million.
High Yield Bond Package Discussed
While negotiations for the share sale are said to be continuing, JP Morgan, which has been WeWork’s principal lender in recent times, has been helping its client market potential new debt to investors.
JP Morgan’s involvement, according to the Wall Street Journal account, does not include the bank lending money from its own balance sheet, with the financial giant instead said to be making its “best efforts” to market WeWork debt to its clients.
Goldman Sachs, which had worked alongside JP Morgan as a lead underwriter on the failed IPO, is not involving itself in the current financing package.
Lenders in general seem to have grown leery of WeWork’s credit, with the company’s corporate bonds, which were issued last year with a coupon rate of 7.875 percent, now trading at over 11 percent, according to the FT.