WeWork, the SoftBank Group-backed startup on Tuesday sought US bankruptcy protection, saying it had entered into a restructuring agreement with its key stakeholders to reduce its existing funded debt.
“Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet,” WeWork CEO David Tolley said in a statement, as per AP. The company said that all the affected members had received an advance notice.
As per a filing with the New Jersey bankruptcy court, the company listed assets of $15.06 billion and liabilities of $18.66 billion as of June 30.
What is WeWork?
Founded in 2010 by Adam Neumann and Miguel McKelvey, WeWork had envisioned creating a ‘physical social network’ for a new class of workers who were freelancing or working from home.
The startup’s business model worked on signing long-term leases for office buildings, spruce up those space and then rent them to freelancers and companies.
The company would attract clients by offering incentives like beer and hard kombucha as well as chic interior design, New York Times reported.
Under Neumann, WeWork witnessed a meteoric rise and became the most valuable US startup worth $47 billion. It managed to attract investments from SoftBank and venture capital firm Benchmark, as well as the backing of major Wall Street Banks, including JPMorgan Chase.
Covid-19 effect on startup
SoftBank had to double down on the investment in WeWork and roped in Sandeep Mathrani to helm the startup as its CEO. In 2021, SoftBank cut a deal to take the company public through a merger with a blank-check acquisition company at an $8 billion valuation.
WeWork did manage to amend 590 leases, and saved about $12.7 billion in fixed lease payments. But proved too little to compensate for the fallout from the COVID-19 pandemic, which had kept office workers at home.
Most of its landlords already feeling the heat, had little incentive to give WeWork a break on the terms of their leases.
WeWork had some success in signing up large conglomerates as clients, many of its customers were startups and smaller businesses, which cut their spending as inflation soared and economic prospects soured.
Another major issue was WeWork facing competition from its own landlords. Commercial property firms that had only entered into long-term rent agreements started offering short and flexible leases to cope with the downturn in the office sector, Reuters reported.
Change in leadership not enough
This year, Mathrani was succeded by former investment banker David Tolley as the WeWork CEO. Tolley had helped debt-stricken satellite communications provider emerge from bankruptcy in 2022.
The company engaged in debt restructurings, but it was not enough to stave off its bankruptcy. The company last week secured a seven-day extension from its creditors on an interest payment to win more time to negotiate with them.
Financial woes leading to bankruptcy proceedings
In August this year, WeWork had flagged concerns over its ability to remain in business. However, experts believed that the cracks within the company had begun to surface several years ago after it was valued as high as $47 billion.
WeWork went public in October 2021, two years after its first attempt in doing so had failed. The debacle had led to the ouster of founder and CEO Adam Neumann, whose erratic behavior and exorbitant spending spooked early investors.
Japan’s SoftBank stepped in to keep the company afloat, acquiring majority control over it.
In September, WeWork announced plans to renegotiate nearly all of its leases, CEO Tolley noted that the company’s lease liabilities accounted for more than two-thirds of its operating expenses for the second quarter of this year — remaining “too high” and “dramatically out of step with current market conditions.”
At the time, WeWork also said it could exit more underperforming locations. As of June 30, the latest date with property numbers disclosed in securities filings, WeWork had 777 locations in 39 countries.
(With agencies inputs)
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