It’s now official: WeWork (NYSE: WE) filed a request for protection from its creditors (Chapter 11) in a New Jersey court yesterday. "The Company maintains the strong support of its key financial stakeholders and has entered into a Restructuring Support Agreement with holders representing approximately 92% of its secured notes to drastically reduce the Company’s existing funded debt and expedite the restructuring process," WeWork said in announcing the bankruptcy move. "Global operations are expected to continue as usual," it added.
WeWork, founded by Israeli Adam Neumann, was considered an exciting startup in the field of shared workspaces, and at its peak was valued at NIS 47 billion. Commenting on the Chapter 11 petition shortly before it was filed, Neumann said, "WeWork’s impending bankruptcy disappoints me."
"As co-founder of the company, and as someone who devoted a decade of his life to building the company together with an amazing team, I find the impending bankruptcy disappointing," Neumman told "Globes". "It has been hard for me to watch from the sidelines since 2019 and see how WeWork has struggled to promote its product, which has become more relevant than ever. Nevertheless, with a suitable team and the right strategy, I believe that the restructuring will enable WeWork to succeed."
The bankruptcy petition is limited to WeWork’s locations in the US and Canada. WeWork Israel is a privately-held company controlled by Ampa Group, and is not affected either legally or financially by the situation of the US company.
"I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the Restructuring Support Agreement. We remain committed to investing in our products, services, and world-class team of employees to support our community," WeWork CEO David Tolley said.
The bankruptcy petition represents an admission by SoftBank, the Japanese investment firm that holds 60% of WeWork and that has invested billions of dollars in it, that WeWork cannot survive unless it renegotiates its expensive lease agreements, under court protection.
In September this year, WeWork, whose financials have carried a going concern qualification for a long time, announced that it would negotiate with the owners of the properties that it leases. Tolley explained that rents represented more than two-thirds of the company’s operating expenses in the second quarter on this year, and in the third quarter too remained high in relation to market conditions at the time. Last month, WeWork again sought to defer interest payments for thirty days.
The company is paying the price of its expansion into many office spaces, beyond its financial capacity, and of the ostentatious management style of its founders. Its activity of leasing buildings, renovating them, and sub-leasing to technology workers and other professionals, promoted the modular renting model, whereby companies could rent fashionable workspaces on demand.
When WeWork embarked on a flotation in 2019, its high level of debt was revealed, and the flotation was postponed to September 2021, when the company became listed on the New York Stock Exchange through a SPAC merger. In 2022, it suffered a double blow, from the rise in interest rates and the consequent fall in value of prestige real estate in large cities in the US and Canada, and from the downturn in the technology industry, which led many customers to cancel contracts.
Published by Globes, Israel business news - en.globes.co.il - on November 7, 2023.
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