Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
WeWork’s senior creditors are poised to take control of the reorganised co-working space provider after agreeing to invest a fresh $450mn, effectively ending Adam Neumann’s attempt to purchase the company he founded.
A federal bankruptcy court judge in New Jersey on Monday approved the outline of the deal. Creditors will vote on May 30 whether to approve the restructuring plan.
Yardi Systems, a real estate technology provider that is a vendor and creditor to WeWork, has agreed to infuse $337mn, equating to 60 per cent of the reorganised company.
A separate group of hedge funds will put in the remaining $113mn of the new money investment, in exchange for 20 per cent of new WeWork.
Entities that hold $4bn of the co-working group’s pre-bankruptcy debt — including SoftBank, WeWork’s biggest backer — will receive the remaining 20 per cent of the company. The new WeWork will carry no debt.
Investment bankers for WeWork have pegged the new company’s value at roughly $750mn, implying that the holders of the company’s existing debt will recover on average about 5 cents on the dollar. WeWork had previously reached a peak private valuation of $47bn.
Lawyers for Neumann, who stepped down from WeWork in 2019, had said WeWork rebuffed his repeated acquisition overtures for the company since December. His lawyers said in court on Monday that he deserved the chance to inspect WeWork’s private financial information in the hopes of making a bid above his previous offer of $650mn.
WeWork lawyers, however, told the court that the newly struck deal with existing lenders had the support of secured and unsecured creditors. Its unsecured creditors will share $32.5mn, even though they were entitled to nothing given the sharp haircuts taken by senior debt holders.
Judge John Sherwood noted the $4bn existing debt had to be paid off first. As such, he noted it was up to the holders of that debt to decide if they wanted to be paid back in equity in the new WeWork, as they would under the reorganisation plan — unless Neumann was willing to pay off the entire $4bn.
“It’s a fast, cheap, reliable and clear path to exit,” a lawyer for the hedge fund creditors told the court on Monday of the $450mn investment.
The pending WeWork resolution marks a remarkable humbling for one of the high-flying companies of the 2010s that had benefited from low interest rates and euphoria around hyped technology companies that said they were reinventing old economy industries. Neumann had hoped to merge WeWork with his latest property venture, Flow.
An attorney for Flow noted Neumann’s bid was still higher than the one approved by the court and said he anticipated “robust objections to confirming this plan”.
When WeWork filed for Chapter 11 bankruptcy protection last November, it sought to swap existing debt for equity in the new company. But the process to sever or negotiate existing leases proved more time-consuming and costly than the company had expected, leaving it to attempt in recent weeks to find new cash to finish the case and capitalise the new company.
Chapter 11 administrative costs, which include fees for lawyers and professionals as well as rents owed to landlords, are expected to reach more than $200mn, according to the company.
WeWork has cut its long-term lease obligations by more than $8bn by cancelling about 150 leases and renegotiating a similar number, leaving only about 150 untouched.