WeWork is about to run out of cash, which has the company’s new leadership choosing between two unappealing options
Photo: David ‘Dee’ Delgado/Bloomberg via Getty Images WeWork is about to run out of cash, so it needs someone to give it more cash. This has the company’s new leadership choosing between two unappealing options: borrowing money, and thus piling large amounts of new interest expense onto an already-unprofitable enterprise; or selling more equity, presumably at a drastically lower valuation than the last time it took equity investment, and diluting the existing shareholders.
And then there is an ugly debt option. According to Bloomberg, the other rescue package WeWork is considering, from J.P. Morgan, would entail $2 billion in unsecured bonds paying an interest rate of 15 percent. That’s high even for junk bonds; 15 percent would be an attractive return on equity, in many situations.
I understand why a potential investor would demand the world in exchange for lending into a firm as speculative as WeWork. But think about what this means for you if you are an existing equity investor. WeWork is taking on more debt, which means higher leverage and greater risk of bankruptcy, which would wipe out your equity and leave you with nothing.
That may be why, as Matt Levine notes, SoftBank is sweetening its equity offer. Earlier in the week, reports were that SoftBank wanted to take majority control of WeWork in exchange for a new equity investment. But now Bloomberg reports SoftBank has a proposal where it would not gain majority control. In addition to preserving the rights of other investors that might also mean SoftBank is agreeing to accept a smaller fraction of the company in exchange for $5 billion.
Singapore Latest News, Singapore Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
WeWork Bonds Fall to New LowWeWork bonds plumbed new lows, highlighting questions about the shared-office startup’s future as it explores options for raising cash after shelving an IPO.
Read more »
Goldman profit slammed by souring WeWork, Uber betsGoldman Sachs Group Inc missed Wall Street estimates for quarterly profit on Tue...
Read more »
WeWork takes more than 2,000 phone booths out of service over potential hazardCoworking startup WeWork is facing a new set of issues after up to 2,300 of its phone booths were flagged to have 'potentially elevated levels of formaldehyde.'
Read more »
WeWork IPO woes are bleeding into the biotech market, bankers say - Business InsiderWhat's hurting tech is hurting biotech, too. M&A bankers say the WeWork debacle is part of what's weighing on health firms' IPO plans.
Read more »
SoftBank reportedly hired restructuring and bankruptcy bankers to help revive WeWorkHoulihan Lokey, a bank known for its restructuring expertise, has been hired to assess loss-making practices, Bloomberg reported.
Read more »
What to watch today: Dow to fall slightly, GM-UAW deal near and WeWork cash-strappedU.S. stock futures are pointing to a lower open, following gains in four of the past five days that have lifted the Dow, S&P 500 and Nasdaq to their highest levels since Sept. 19.
Read more »