WeWork files bankruptcy, posts whopping $18.66 billion in debt

By Sarah Lizee

Olympia, Wash., Nov. 7 – WeWork Inc. filed Chapter 11 bankruptcy on Monday evening in the U.S. Bankruptcy Court for the District of New Jersey.

The company said it has entered into a restructuring support agreement with investor SoftBank Group Corp. and holders of about 92% of the company’s first-, second- and third-lien notes.

The RSA is centered on the full equitization of the first- and second-lien notes and a letter-of-credit facility with Goldman Sachs International Bank and OneIM Fund I LP. The transaction is expected to reduce the company’s funded debt by about $3 billion.

The debtors have also filed motions seeking authority to reject over 60 unprofitable leases and the approval of procedures designed to streamline the process of additional lease rejections.

The company also plans to file recognition proceedings in Canada under the Companies’ Creditors Arrangement Act.

WeWork said its locations outside of the United States and Canada are not part of this process, and its franchisees around the world are similarly not affected by the proceedings.

Background

WeWork was founded in 2010 by co-founders Adam Neumann and Miguel McKelvey.

In 2017, it raised $4.4 billion from SoftBank at a valuation of about $20 billion. Two years later, the company raised another $2 billion from SoftBank at a valuation of about $47 billion.

But the company’s valuation came into doubt after WeWork filed its initial registration statement related to a proposed initial public offering in August 2019.

The company’s negative earnings and leadership issues had investors balking at the valuation, and the initial registration statement was withdrawn less than two months after it was filed.

As a result of the IPO failure, Neumann resigned as CEO, and SoftBank took control of the company in October 2019, paying Neumann about $1.7 billion to remove himself as chairman of the board.

SoftBank then provided about $5 billion in new financing to the company.

The company then started on a lease rationalization process. However, the onset and results of the Covid-19 pandemic wreaked havoc on the commercial real estate landscape, the company said.

Despite those headwinds, about a year and a half later, the company successfully went public on the New York Stock Exchange through a de-SPAC transaction.

Since then, the company has continued to grow its business and execute on its strategic plan, benefiting from a cyclical recovery from the pandemic but also burdened by the need to adapt to permanent changes among companies and employees in work and work-from-home behaviors, WeWork said.

In early 2023, the company negotiated note exchanges with most of its public noteholders and SoftBank. As a result, WeWork secured over $1 billion of total funding and capital commitments, canceled or equitized about $1.5 billion of total debt and extended the maturity of about $1.9 billion of debt from 2025 to 2027.

Still, the company said it could not overcome the legacy real estate costs and industry headwinds it faced.

Going forward

The company then engaged Kirkland & Ellis LLP, PJT Partners LP, Hilco Real Estate, LLC and Alvarez & Marsal North America LLC to chart a path of value preservation and maximization.

Specifically, the company and advisers led initially by Hilco began a comprehensive review of the company’s real estate lease portfolio and engaged substantially all of the company’s landlords in negotiations to reduce the company’s rent burden and identify leases most likely to continue driving indefinite losses for the company.

In parallel, Kirkland, PJT and Alvarez & Marsal engaged with SoftBank and the other major holders of the company’s funded debt to negotiate the terms of a comprehensive restructuring transaction.

“WeWork has a strong foundation, a dynamic business and a bright future,” David Tolley, chief executive officer, said in the release.

“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet.”

The company has filed a series of customary first-day motions to facilitate a smooth transition into the process and to support operations throughout its cases.

WeWork said it expects to have the financial liquidity to execute the proceedings and continue business in the ordinary course.

Petition details

In its petition, the company listed $15.06 billion in assets and $18.66 billion in debt.

Its largest unsecured creditors are U.S. Bank Trust Co., NA, based in New York, with a $170.73 million 7 7/8% senior notes due 2025 and a $9.47 million 5% senior notes due 2025 claim, Alter Group, based in Wilmette, Ill., with an $11.88 million lease termination fees and related litigation claim, Westfield Fulton Center LLC, based in New York, with an $8.17 million accrued unpaid rent claim, and 400 California, LLC, based in Beverly Hills, Calif., with a $7.84 million accrued unpaid rent and related litigation claim.

WeWork is a New York-based provider of shared workspaces and related business services. The Chapter 11 case number is 23-19865.

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