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WeWork Bonds Crash To Record Low, JPMorgan Financial Lifeline Preferred

WeWork Bonds Crash To Record Low, JPMorgan Financial Lifeline Preferred

Early investors and investment banks behind WeWork are panicking as the company runs out of cash next month. The struggling start-up is considering two massive bailouts, one either from JPMorgan Chase & Co. or another from SoftBank Group Corp., according to Bloomberg sources.

The office-sharing start-up had its IPO request rejected last month when questions started to swirl about its non-existent profitability plan. 

As macroeconomic headwinds continue to mount, Wall Street has recently readjusted valuations of unicorns and focused on profitable companies, due to the threat of a recession in 2020 and beyond. 

As we noted last month, WeWork lost $690 million in the first six months of the year and is expected to generate a loss from operations approaching $3 billion as it burns through tens of millions in cash daily. The company could run out of money in the coming months if it fails to receive a capital injection.  

Here are the financial lifelines being thrown out to WeWork at the moment: 

  1. A debt and equity blend infusion via SoftBank, WeWork's top shareholder. If WeWork goes ahead with this deal, SoftBank/Vision Fund would be in full control of the office-sharing start-up.

  2.  JPMorgan Chase & Co. is offering a $5 billion financing package, rather than a controlling stake, at least $2 billion of unsecured notes will be yielding 15% coupon. 

Sources told Bloomberg, WeWork is seriously considering JPMorgan's financing rather than SoftBank's deal, which would avoid diluting top private shareholders. Option two is costly, but if there's a turnaround in the company, it could be rewarding for shareholders and JPM. 

WeWork's valuation collapsed this year from $47 billion in January to $10 to $12 billion in October, forcing co-founder Adam Neumann to step down as CEO. 

"There may be little appetite for a cash-burning business-facing other headwinds, even with a bond yield over 10%," Bloomberg Intelligence analyst Arnold Kakuda wrote in a note last week.

Fitch Ratings downgraded WeWork's credit rating earlier this month by two notches to "CCC+," shifting WeWork's debt deeper into junk territory. 

"In the absence of an IPO and associated senior secured debt raise, WeWork does not have sufficient funding to meet its growth plan," Fitch wrote in a note.

Since the IPO was pulled and valuations collapsed, WeWork's WE 7.875 01-MAY-2025 junk bond was last trading at about 90.5 cents on the dollar according to Tradeweb data, a hefty discount to face value, which indicates doubts the company can repay its debts.

If WeWork takes JPM's financing deal, it could give the company some time to reorganize and develop a plan towards profitability, but that comes at a time when macroeconomic headwinds are becoming more severe. 

Bloomberg notes that at least 60 financing sources have signed non-disclosure agreements with WeWork. The start-up could make the final decision on a deal to save itself from bankruptcy in the next several weeks.

However, the market is extremely disappointed. After an exuberant pump yesterday - hope is never a strategy - WeWork bond prices are plunging to record lows today (yield above 13%) after the new debt packages become clearer...

Source: Bloomberg

Tyler Durden Tue, 10/15/2019 - 09:25

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