SoftBank’s WeWork, once the most valuable US startup, succumbs to bankruptcy

Nov 6 (Reuters) – WeWork, the SoftBank Group-backed startup whose meteoric rise and fall has reshaped the office industry worldwide, sought U.S. bankruptcy protection on Monday.

Japanese technology group SoftBank ( 9984.T ), which owns about 60% of WeWork ( WE.N ) and has invested billions of dollars in its turnaround, reflects that the company cannot survive unless it renegotiates its expensive leases. In bankruptcy.

A WeWork spokeswoman said about 92% of the company’s creditors agreed to convert their secured debt into equity under a restructuring support agreement, wiping out about $3 billion in debt.

The company, which wants to file for recognition proceedings in Canada, said it will have the financial liquidity to continue business as usual and that its locations outside the US and Canada, as well as its franchisees around the world, are not affected. activities.

WeWork had office space in 777 locations worldwide as of the end of June.

SoftBank said it believes WeWork’s restructuring support agreement is an appropriate step for the company to restructure its business and emerge from Chapter 11 proceedings.

“Softbank will continue to act in the best long-term interests of our investors,” the Japanese firm said in a statement.

WeWork shares are down 98.5% so far this year.

Profits remain elusive as WeWork cancels due to expensive leases and corporate clients due to the trend of employees working from home. Payments for space accounted for 74% of WeWork’s revenue in the second quarter of 2023, the last time it reported financial results.

In a New Jersey bankruptcy court filing, WeWork listed $15.06 billion in assets and $18.66 billion in debt as of June 30.

“WeWork may use the provisions of the U.S. Bankruptcy Code to avoid onerous leases,” law firm Cadwalader, Wickersham & Taft LLP said in a note to landlords on its website in August. Some landlords face a significant impact.

“As part of today’s filing, WeWork is requesting the ability to reject leases at certain locations that are largely non-performing, and all affected members have received advanced notice,” the company said in a statement.

Under its founder Adam Newman, WeWork grew to become the most valuable US startup worth $47 billion. It attracted investments from blue-chip investors including Softbank and venture capital firm Benchmark, as well as backing from major Wall Street banks including JPMorgan Chase ( JPMN ).

Newman’s pursuit of monster growth at the expense of profits and revelations about his eccentric behavior led to his ouster and the derailment of an initial public offering in 2019.

SoftBank was forced to double its investment in WeWork, and tapped real estate veteran Sandeep Madrani as its CEO. In 2021, SoftBank cut a deal to take WeWork public by merging with a blank-check acquisition company at a valuation of $8 billion.

WeWork modified 590 leases, saving approximately $12.7 billion in fixed lease payments. But that’s not enough to offset the fallout from the COVID-19 pandemic, which has kept office workers at home.

Many of its landlords, feeling the pressure, have little incentive to give WeWork a break in the terms of their leases.

While WeWork has had some success in signing up large corporations as customers, many of its customers have been startups and small businesses that have cut their spending as inflation has risen and economic prospects have waned.

Adding to WeWork’s woes is competition from its own landlords. Commercial property companies, which traditionally only entered into long-term rental agreements, started offering short and flexible leases to cope with the downturn in the office sector.

Madrani was succeeded as WeWork CEO this year by David Dolley, a former investment banker and private equity executive who helped lead Intelsat out of bankruptcy in 2022 as chief executive.

WeWork has been involved in debt restructurings, but this has not been enough to stave off its bankruptcy. The company last week got a seven-day extension on interest payments from its creditors to get more time to negotiate.

Shortly before WeWork filed for bankruptcy, Newman said in a statement, “With the right strategy and team in place, I am confident that a restructuring will help WeWork emerge successfully.”

Shares of SoftBank, which has invested in WeWork for several years, fell 0.08% in Tokyo on Tuesday, outpacing a 1.3% drop in the broader market (.N225).

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