WeWork spreads net funding as debt investors balk
By Paul Kilby and Michelle Sierra
NEW YORK, October 17 (IFR) – We workAttempts to raise $ 5 billion in the loan and bond markets failed last week as the struggling office-sharing company sought alternative financing amid widespread skepticism about its ability to return to the markets debt.
The cash-strapped company has been rushing to raise new funding since it was forced to abandon its IPO plans last month after equity investors questioned the high valuation of the company and its fragile business model.
WeWork is now receiving a similar setback from debt investors who have largely hesitated over a JP Morgan-led bailout that includes a $ 1.75 billion letter of credit facility and $ 3.25 billion of bonds guaranteed and unsecured, even at substantial returns.
The unsecured bond was informally marketed with an 11% coupon and reduced price of 94 for a 15% yield, with warrants attached that can be exercised at a valuation of $ 12 billion, said a source close to funding.
The price of the covered bonds was to match the price of the company’s existing bond.
This package, however, seems less and less viable – not to say expensive.
Not only is the bond deal a hard sell, but banks that signed a $ 6 billion loan program – which hinged on a successful IPO – are abandoning their support for a new deal.
Only banks already involved in the existing $ 650 million revolving credit facility are expected to remain on board if a new letter of credit goes through.
“Why stay? Why do people stay in bad marriages? Because the alternative is worse,” the source said.
JP Morgan, Goldman Sachs, Bank of America Merrill Lynch, Barclays, Citigroup, Swiss credit, HSBC, UBS, Wells fargo and German Bank are lenders in the company’s existing RCF.
“It is difficult to know what will happen,” said the source close to the funding. “It’s flawed and it’s messy. It’s like the Joker movie: it’s painful to watch, but you can’t take your eyes off it.”
Sources say the company is currently evaluating financing options involving SoftBank, as well as JP Morgan’s proposal, as it seeks to capitalize over the next 18 months. Both are major shareholders of WeWork.
News that SoftBank was in talks to provide $ 5 billion in funding temporarily lifted WeWork’s only existing junk bond – the 7.875% 2025 – which jumped last week to a price of $ 89 for a yield of 10.547%. to fall back to 83.125 on Thursday.
âIt looks like SoftBank is coming with the funding,â said Jesse Rosenthal, analyst at research firm CreditSights. “The connection was a bit of a stretch.”
BOND INVESTORS RETURN
US high yield bond investors have favored higher quality credit this year and are in no mood to lower the credit specter as the economic cycle draws to a close.
âYou can’t make a silk handbag with a sow’s ear in this market. It’s a market that’s a lot more difficult in what it wants to fund,â said David Knutson, head of credit research. at Schroders Investment Management.
Fitch downgraded WeWork two notches to CCC + this month, while S&P downgraded it to B- in September, in part due to uncertainty over its ability to raise capital.
SoftBank, which has invested billions of dollars in the company, in effect forced co-founder Adam Neumann to step down as CEO and relinquish majority vote control last month as the company valuations went from $ 47 billion to $ 10 billion.
âAt the very least, they need to restructure the balance sheet in the face of the change in valuation,â said Larry Perkins, CEO of consulting firm Sierra Constellation Partners.
“[It needs] a restructuring to turn it from a pie-in-the-sky idea into a functioning business that intends to make money. “
Against this backdrop, it’s hardly surprising that most US high-yield fund managers have shown little interest in credit and would likely find it difficult to justify placing WeWork debt in their portfolios anyway.
One of those buyside managers believed that any bond transaction would likely go private and primarily target hedge funds and private equity players.
“With this level of ambiguity and so much confusion, someone having to appear before a creditors committee will have to have a high degree of gut courage,” Perkins said.
“I don’t see anyone sticking their necks out to do this.”
(This story will appear in the October 19 issue of IFR Magazine.)
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