In a turn of events that marks a significant crossroads for the once high-flying startup, a consortium of Wall Street firms that extended loans totaling hundreds of millions of dollars to WeWork is exploring the potential of steering the company toward a bankruptcy filing. This move could provide WeWork with a lifeline to escape from its burdensome office leases, a strategy among several others that are currently under discussion, according to a report in the Wall Street Journal.
Recent uncertainties surrounding WeWork’s ability to sustain its operations have prompted heavyweight fund managers, including BlackRock, King Street Capital, and Brigade Capital, to initiate preliminary discussions about potential company restructuring strategies. These stakeholders have indicated a willingness to support a plan for WeWork to file for Chapter 11 bankruptcy—a move that, if pursued, could allow the company to jettison a portion of its costly commercial real estate leases, effectively placing control of the organization into the hands of its creditors, who are themselves among the key lenders.
Despite these discussions, no formal proposals about bankruptcy or debt restructuring have been presented to WeWork’s board by the creditors involved. If bankruptcy proceedings were to be initiated, WeWork would likely undergo a comprehensive restructuring of its debt, offering creditors shares in the reorganized company as part of the settlement.
This potential trajectory is crucial due to the central role these fund managers have assumed as major investors in WeWork. Having extended $1.2 billion in new debt to the company earlier in the year, these fund managers now account for approximately half of WeWork’s long-term debt. This heightened involvement places them in a position to significantly influence the company’s financial future.
However, the report outlined the route to bankruptcy isn’t the only avenue being considered. WeWork’s management, including interim Chief Executive David Tolley, has expressed a commitment to avoiding Chapter 11 filing through negotiations with landlords and reducing the cost of rent—a strategy that could potentially put the company back on a steadier financial footing. Tolley underlined the importance of considering the perspectives of a broader range of landlords before making any decisive moves toward restructuring.
The impending discussions between WeWork and its creditors could commence in the latter part of the year, according to sources familiar with the situation cited in the report. The eventual outcome will have far-reaching implications, signaling either a fresh start for WeWork or a low point for a company once hailed as the world’s most valuable startup, boasting a staggering valuation of $47 billion.
WeWork’s cash flow struggles have been manifest, as evidenced by a burn rate of around $530 million in the first half of the year, coupled with only $205 million in cash reserves. This situation has been exacerbated by an unexpectedly high churn rate among its members. With over $10 billion in lease obligations due from the second half of the year through the end of 2027 and an additional $15 billion starting in 2028, the pressure to restructure these commitments has intensified.
Should WeWork opt for bankruptcy protection, it would enable the company to disentangle from fixed contracts, particularly its onerous property leases. The intricate dynamics at play are further complicated by the presence of key investors like SoftBank, whose substantial holdings could face significant losses in the event of a bankruptcy filing.