SoftBank’s group (9984.T) backed US startup WeWork (WE.N), whose overnight rise and fall changed the corporate sector globally, has gone bankrupt after filing for a US bankruptcy protection on Monday.
Once the largest co-working space in the United States has filed for bankruptcy following the loss of investments in businesses using more of its office-sharing space. The move appears as an admission from SoftBank, the Japanese technology group owning 60% of stake in WeWork, that the company can not survive without the renegotiation of its deals.
WeWork spokesperson on Monday said that 92% of its lenders had agreed on a convertible equity structure, converting secured debt into equity, which will wipe out nearly $3 billion of debt.
WeWork, while intending to file recognition proceedings in Canada too, said that it has the required financial liquidity to continue the business as per routine. It further said that its locations outside the USA and Canada won’t get affected by these proceedings.
SoftBank group was of the view that the restructuring program is the appropriate action for WeWork to transform its business and emerge with triumph out of bankruptcy. While saying that, “SoftBank will continue to act in the best long-term interests of our investors.”
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Looking at the Massive fall
WeWork (WE.N), listed on the New York Stock Exchange (NYSE) , has seen a massive 98.5% fall in its share prices so far this year. Similarly, maintaining profitability is another issue as it struggles against extensive leases and deals cancellations since the trend of employees working from home has seen a surge.
This trend had serious consequences for the company’s financials, as reported in the second quarter that nearly three-fourths of the revenue goes into the payments of the consumed space.
All of this resulted in WeWork listing the bankruptcy with the New Jersey bankruptcy court with $15.06 billion of assets and $18.66 billion of liabilities as of June 30. The company in its statement issued on Monday said that, “as part of today’s filing, WeWork is requesting the ability to reject the leases of certain locations, which are largely non operational, and all affected members have received advanced notice.”
The law firms noted that WeWork might use the provisions of US bankruptcy code to get rid of the leases and some landlords have already set for a significant impact of these measures.
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WeWork Prior to Bankruptcy
WeWork, one of the largest co-working space providers in the US, is headquartered in New York City (NYC). SoftBank’s backed WeWork operated on 777 locations in 39 countries across the globe, prior to going bankrupt.
Under the leadership of its founder Adam Neumann, the company grew to become the most valuable US startup valuing up to $47 billion. This helped them attract investments from blue-chip companies like SoftBank, venture capital firms and the backing from Wall Street banks, including JPMorgan Chase.
However, Neumann’s pursuit of high growth over healthy profits, and the revelation about his strange behavior eventually led to his ouster and the derailment of IPO in 2019. Seeing all this, SoftBank had to double its investment in the company, bringing real estate veteran Sandeep Mathrani as its CEO in 2021.
The same year, SoftBank went on to make WeWork public through a merger with a blank-cheque acquisition company valued at $8 billion. Although WeWork managed to amend 590 lease agreements, saving around $12.7 billion. It wasn’t enough to cover the losses from the COVID-19 pandemic.
While WeWork had some success in signing large business groups as clients, most of its users were small and medium sized companies or startups, who reduced their spending when inflation soared.
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Under the New CEO
David Tolley, the former Chief Executive at Intelsat and the former investment banker and private equity executive, who helped the debt stricken satellite communications provider to come out of bankruptcy last year, has just succeeded Mathrani as the new CEO of WeWork.
Under his leadership, WeWork immediately engaged in debt restructuring support programs, and gained extensions from its creditors to get more time to pay the debt, though it couldn’t save them from bankruptcy.