The co-working space provider WeWork plans to file for bankruptcy as early as next week, a source familiar with the matter said on Tuesday. The company, once privately valued at $47 billion, has been struggling with a massive debt pile and hefty losses. Its attempt to go public in 2019 imploded amid investors’ skepticism about its business model and ability to generate a profit, while its founder and chief executive, Adam Neumann, was ousted after a corporate scandal. The global COVID-19 pandemic and the shift to remote work further eroded WeWork’s prospects. The company has yet to profit, and its stock has lost 98% of its value this year.
WeWork has been working to improve its balance sheet by pursuing forbearance agreements with creditors and rationalizing its real estate footprint, according to its latest regulatory filing on Tuesday. The company is also reportedly considering Chapter 11 bankruptcy, which would allow it to postpone payments on its debt and back rent. However, it would still be liable for any rent due after that date.
If WeWork does declare Chapter 11, it could wreak havoc on office landlords and other investors in the real estate sector who hold its bonds. The company’s debt is trading at distressed levels, with its 7.875% unsecured notes due in 2025 currently fetching just 33.5 cents on the dollar on the market, according to Trace data.
Investors are clamoring for the company to do something to bolster its balance sheet and give them confidence it can continue operating. However, WeWork is unlikely to get a reasonable price for any assets it might sell off to pay its debts. The company’s assets are primarily leases, which will not yield as much in a sale as the cash it has been pulling from its membership fees.
The company’s dire situation was underscored by a gloomy earnings report on Tuesday that saw its revenue slump globally, especially in America. The company also saw a spike in member churn, a measure of the number of people leaving its spaces. It also warned that its cash burn is set to accelerate and that it might not be able to make interest payments on its debts. Shares of the company fell by more than 32% in extended trading on Tuesday after the Wall Street Journal first reported the news. They have fallen roughly 96% this year. The company is considering filing a Chapter 11 petition in New Jersey, the WSJ reported, adding that it may be seeking court protection from its lenders in the process. The company declined to comment on the WSJ’s report. A spokesman for WeWork’s parent company, SoftBank Group Corp., did not immediately respond to a request for comment. WeWork operates 777 locations in 39 countries as of June. The company has been trying to shore up liquidity by cutting costs, controlling expenses, and reducing member churn.
