Credit ratings agency Fitch Ratings has demoted WeWork’s rating, due to concern that the company will be unable to pay off long-term debt and the diminishing demand for office space.
“While WeWork has made material progress to reduce its cash burn rate, in a scenario where demand is structurally lower, Fitch sees WeWork as potentially requiring additional liquidity sources inclusive of and beyond the full $3.3B SoftBank financing commitment,” Fitch said in a statement.
WeWork’s rating went from CCC+ to CCC as Fitch indicates that the possibility of WeWork burning through all its cash is high. This sort of rating means that default on long-term debt has become a stronger possibility.
Best-case scenario, WeWork would see a cash burn rate of about $900 million next year and experience a “moderately positive free cash flow.”
However, a worse-case scenario indicates that the incoming second wave of COVID-19 will continue to damage office demand, leading WeWork to burn through $1.5 billion during the next two years. This means the firm would be out of money by 2022.
“While SoftBank has consistently provided additional funding sources and operational support, it is unclear that further funding would be available in a distressed scenario,” Fitch’s statement read.
WeWork has introduced new initiatives to help boost office usage throughout the pandemic, such as its All Access subscription-based program that allows members to work from any WeWork location.
Still, it is unclear whether these new initiatives will help the company achieve profitability.