WeWork could run out of money by next month — despite the fact that it was valued at $47 billion just nine months ago, making it America’s highest-valued private firm at the time.
While it was expected to be the biggest one of the biggest IPOs of the year, the company — which rebranded itself to We Company — decided to shelve its plans to go public last month after it divulged extensive losses. A $6 billion debt financing that was tied to the offering was also scrapped, which means WeWork could run out of money by mid-November, according to CNBC. With bankruptcy a real possibility, the commercial real estate market could feel the impact.
“It’s like you’re trying to sell a property and you’re talking about renovation and some cosmetic work and all of a sudden you have a fire,” said Jake Cantu, global co-leader of the technology, media and telecommunications practice at consulting firm AlixPartners in Chicago. “Then it’s really a completely changed scenario.”
In an effort to slash costs, WeWork is closing down non-core businesses and divesting assets like its former CEO’s private jet. Last week, the company announced it would close its Manhattan private school, WeGrow, next year, and will reportedly lay off at least 2,000 staff in the coming week — 13 percent of its 15,000 payroll — with thousands of more job losses expected to follow.
But WeWork’s biggest problem is its ties to long-term leases. According to its prospectus, the company had $22 billion in long-term liabilities as of June 30, with $17.9 billion in long-term leases. WeWork admitted that the length of the leases “extend for periods that significantly exceed the length of our membership agreements with our members, which may be terminated by our members upon as little notice as one calendar month.”
Since WeWork can’t simply stop paying its leases, sources said it is working on renegotiating or getting out of its most expensive leases. It will have to move fast, though, if it wants to avoid bankruptcy.
“The IPO only filed in the middle of September, now it’s the middle of November that they may be out of cash,” said Stephen Selbst, chair of the restructuring and bankruptcy group at New York law firm Herrick Feinstein. “They don’t have the luxury of time to do an in-depth analysis.”
In the meantime, its biggest outside investor, SoftBank, has been in talks with JP Morgan (WeWork's third-largest shareholder), about rescuing the company. The bailout could involve equity from SoftBank and debt from JP Morgan. In the bailout effort, JP Morgan has tapped 100 potential investors.