WeWork, supported by SoftBank, has filed for U.S. bankruptcy protection due to its struggling business model, with shares plummeting by about 98.5 percent in a year. The company, which maintained office spaces at 777 locations worldwide as of June, acknowledged its inability to survive without restructuring costly leases. About 92 percent of WeWork's lenders have agreed to convert their debt into equity, reducing the debt load by $3 billion. Expensive leases and the shift of corporate clients to remote work challenged WeWork's profitability, with space costs accounting for 74 percent of Q2 2023 revenue. SoftBank hopes the restructuring agreement will pave the way for WeWork's revival.
The SoftBank Group-backed start-up, WeWork, filed for U.S. bankruptcy protection, marking a dramatic reversal in its fortunes. The company's precipitous rise and subsequent downfall have left a lasting imprint on the global office sector. WeWork's move is a stark admission by SoftBank, the Japanese technology conglomerate that holds a significant 60 percent stake in WeWork and has infused substantial funds into its turnaround, that the company's survival hinges on the renegotiation of its costly leases through bankruptcy proceedings. A WeWork spokesperson revealed that approximately 92 percent of the company's lenders have agreed to convert their secured debt into equity under a restructuring support agreement, effectively erasing $3 billion in debt.
WeWork also plans to initiate recognition proceedings in Canada. The company assures that its operations outside the U.S. and Canada, as well as those of its global franchisees, will remain unaffected. WeWork had office space at 777 locations worldwide by June. SoftBank believes WeWork's restructuring agreement is vital for a successful Chapter 11 recovery. WeWork's shares fell by about 98.5 percent this year, with high lease costs and remote work trends affecting profitability as space expenses consumed 74 percent of Q2 2023 revenue. In a New Jersey bankruptcy court filing, WeWork disclosed assets valued at $15.06 billion and liabilities totalling $18.66 billion as of June 30. The company may utilize U.S. bankruptcy code provisions to relieve itself of burdensome leases.
WeWork's filing includes a request to reject leases at certain non-operational locations, with advanced notice provided to affected members. Under founder Adam Neumann, WeWork's valuation soared to $47 billion. Despite securing investments from prominent names such as SoftBank and Benchmark, as well as support from major Wall Street banks like JPMorgan Chase, WeWork's rapid growth without a focus on profitability led to Neumann's removal and the derailment of its 2019 IPO plans. SoftBank was compelled to reinforce its investment in WeWork, appointing real estate expert Sandeep Mathrani as its CEO. In 2021, SoftBank arranged for WeWork to go public through a merger with a special purpose acquisition company (SPAC) at an $8 billion valuation.
WeWork managed to revise 590 leases, saving approximately $12.7 billion in fixed lease payments. However, the COVID-19 pandemic's impact, which kept office workers at home, proved insurmountable. Landlords were reluctant to amend lease terms. While WeWork did secure contracts with major corporations, many of its clients were start-ups and small businesses that reduced their spending amid rising inflation and uncertain economic conditions. Additionally, traditional commercial property firms, which typically opted for long-term leases, began offering flexible short-term agreements, intensifying WeWork's competition. This year, David Tolley, a former investment banker and private equity executive, took over as WeWork's CEO from Mathrani.
WeWork had engaged in debt restructurings, but they proved insufficient to prevent bankruptcy. The company recently received a seven-day extension from creditors for an interest payment to facilitate negotiations. Shortly before filing for bankruptcy, Neumann expressed optimism about WeWork's prospects, emphasizing the importance of the right strategy and a capable team for a successful reorganization. SoftBank's shares fell by 0.08 percent in Tokyo following the bankruptcy announcement, outperforming the broader market's 1.3 percent decline.
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