Cash-Burning WeWork Announces Complex Agreement To Deleverage Capital Structure at the Cost of Higher Interest Rates
Posted on 03/17/2023
Flexplace provider WeWork Inc. (NYSE: WE) announced that it has entered into a series of agreements with an ad hoc group representing over 60% of the company’s public bonds, a third-party investor, and SoftBank’s Vision Fund II. The ad hoc group includes funds and accounts managed by King Street Capital Management, L.P., funds and accounts managed by BlackRock Inc., funds and accounts managed by Brigade Capital Management, and other financial institutions. SoftBank’s Vision Fund II is managed by Japan-based Softbank Group Corporation. In February 2023, the company forecast weak current-quarter revenue, after having announced moves to slash 300 jobs and exit 40 underperforming U.S. locations. WeWork went public in 2021 after a two-year struggle. WeWork has yet to post a quarterly profit.
Collectively, the transactions announced will reduce WeWork’s net debt by approximately US$ 1.5 billion at closing, extend a significant maturity wall from 2025 to 2027, and result in new funding and new and rolled capital commitments of over US$ 1 billion once completed. The interest rate on the new convertible exchange notes ranges from 11% to 12%, while the new delayed draw notes at US$ 475 million are at 15% interest rate.
The transactions deliver approximately US$ 540 million in new funding, US$ 175 million in new capital commitments, and US$ 300 million in rolled capital commitments, totaling over US$ 1 billion, and net incremental liquidity of over US$ 500 million after cancelation of SoftBank’s prior US$ 500 million senior secured note purchase agreement.
The debt reduction part cancels approximately US$ 1.5 billion of total debt through the equitization of approximately US$ 1 billion of SoftBank unsecured notes, and discounted exchanges of unsecured notes. Pro forma for the transaction, WeWork will have less than US$ 2 billion in net debt at closing.
With regard to the debt maturity extension, the deal extends fiscal year 2025 maturity wall by two years; approximately US$ 1.9 billion of pro forma debt will now mature in 2027.
PJT Partners LP served as exclusive financial advisor, and Kirkland & Ellis LLP served as exclusive legal advisor to WeWork. Houlihan Lokey served as exclusive financial advisor, and Weil, Gotshal & Manges LLP served as exclusive legal advisor to SoftBank. Ducera Partners LLC served as exclusive financial advisor, and Davis Polk & Wardwell LLP served as exclusive legal advisor to the ad hoc group of public bondholders.