The Wall Street Journal reported on Thursday prominent Wall Street firms, including BlackRock, King Street Capital, and Brigade Capital — who collectively lent WeWork over $1.2 billion earlier this year — are now in preliminary discussions about the company’s financial restructuring. These discussions revolve around the potential for WeWork to file for chapter 11 bankruptcy, although no formal proposals have been presented to the company’s board yet.
Sources familiar with the matter say a bankruptcy filing could enable WeWork to offload a significant portion of its burdensome commercial real-estate leases, according to WSJ. The paper reported that this move might also see the company’s control shift to its creditors. If bankruptcy proceedings are initiated, it’s anticipated that WeWork would restructure its debts, potentially offering shares in the revamped company to its creditors.
WeWork’s financial health has been under scrutiny, especially after the company reported that it failed to achieve profitability earlier this month. WeWork attributed its lack of profitability to an oversupply of commercial real estate, heightened competition, and volatile economic conditions. In a filing with the SEC, the company’s management has expressed concerns about its ongoing viability due to mounting losses and increased member attrition.
The company has previously emphasized its efforts to renegotiate its leases to reduce rent costs, aiming to avoid a chapter 11 filing. However, its financial challenges are still very evident. WSJ reports that the WeWork has looming lease obligations estimated at $10 billion through 2027 and an additional $15 billion starting in 2028.
WeWork appears to be gearing up for a restructuring, having brought in a team of advisors this week. The company also added four restructuring specialists — Paul Aronzon, Paul Keglevic, Elizabeth LaPuma and Henry Miller — to its board earlier this month, according to Bloomberg News.
If WeWork files for bankruptcy, its publicly traded stock could be rendered worthless (it’s already close), leading to even more significant losses for shareholders. The New York Stock Exchange suspended trading of the company’s stock warrants this week, citing “abnormally low” trading prices.
It’s clear WeWork’s major investors are now bracing for the worst.