7-11-2023 (NEW YORK) WeWork, the office-sharing startup backed by SoftBank Group, filed for bankruptcy protection on Monday, marking a significant turn in its turbulent journey. The move underscores SoftBank’s acknowledgment that WeWork’s survival hinges on renegotiating its expensive leases through bankruptcy.
WeWork has initiated a restructuring agreement with key stakeholders aimed at significantly reducing its existing funded debt. The company also plans to initiate recognition proceedings in Canada. The proceedings will have no impact on WeWork’s locations outside the US and Canada, or on its franchisees globally.
WeWork has experienced a drastic fall from grace, with its shares plummeting by approximately 98.5% this year. The company’s profitability has remained elusive due to costly leases and a decline in corporate clients, some of whom have transitioned to remote work. In the second quarter of 2023, space costs accounted for 74% of WeWork’s revenue.
According to a filing with the New Jersey bankruptcy court, WeWork reported estimated assets and liabilities in the range of $10 billion to $50 billion. The company intends to utilize provisions of the US bankruptcy code to relieve itself of onerous leases, potentially impacting some landlords.
In the past, WeWork managed to amend 590 leases, saving approximately $12.7 billion in fixed lease payments. However, these efforts were insufficient to offset the challenges posed by the COVID-19 pandemic, which led to remote work and a decline in demand for office spaces.
WeWork faced intense competition, not only from market conditions but also from its own landlords. Commercial real estate firms, which traditionally engaged in long-term lease agreements, began offering short and flexible leases to adapt to the changing office sector.
WeWork’s founder, Adam Neumann, steered the company to become the most valuable US startup, with a worth of $47 billion. Despite attracting investments from prominent investors such as SoftBank and Benchmark, as well as the support of major Wall Street banks like JPMorgan Chase, Neumann’s pursuit of rapid growth at the expense of profitability, along with reports of his unusual behavior, resulted in his removal and the derailment of WeWork’s initial public offering in 2019.
Following these setbacks, SoftBank was compelled to increase its investment in WeWork and appointed real estate veteran Sandeep Mathrani as the startup’s CEO. In 2021, SoftBank orchestrated a merger with a blank-check acquisition company, valuing WeWork at $8 billion.
While the company managed to restructure a significant number of leases, it couldn’t overcome the challenges posed by the pandemic and evolving work habits. The bankruptcy filing followed a one-week extension from creditors to negotiate an interest payment.
WeWork has expressed optimism that reorganization will enable the company to emerge successfully. David Tolley, a former investment banker and private equity executive, took over as WeWork’s CEO this year. Tolley previously played a crucial role in helping the debt-ridden satellite communications provider Intelsat emerge from bankruptcy in 2022.
