WeWork’s Latest Death Knell: Another Credit Downgrade After Dismal Q2

WeWork’s latest credit downgrade from Fitch Ratings drops it to CC, aka worse-than-junk status. 

What’s going on:

Fitch Ratings has downgraded WeWork’s credit rating from ‘CCC-‘ to ‘CC’ due to disappointing Q2 financial results, according to BE News. This comes alongside a public statement from WeWork that the company’s ability to continue operating over the next year hinges on improving its liquidity, which is currently dwindling. There have also been resignations of key executives and board members, with some board members being replaced by restructuring experts. Additionally, WeWork’s first-lien bonds were downgraded, while its second-lien and unsecured bonds were unchanged. The company’s cash reserves have significantly decreased, and its operating performance has consistently fallen short of projections. The ratings impact approximately $1.4 billion of WeWork’s debt, according to Fitch Ratings.  

Why it matters:

The downgrade of WeWork’s credit rating into less-than-junk territory is another significant blow indicating the company’s waning financial health and its ability to meet its obligations. The resignations of key personnel and the introduction of restructuring experts suggest internal acknowledgment of these challenges. The company’s fading cash reserves and failure to meet its own projections further diminish its sustainability and future prospects.

How it will impact the future of work:

WeWork’s downfall will have far-reaching implications for the flexible workspace sector and the broader commercial real estate market. A potential bankruptcy would impact commercial real estate markets where WeWork has a presence, because landlords who have deals with WeWork face the possibility of higher vacancy rates and could struggle to replace WeWork as a tenant. Its closure would lead to a reduction in available co-working spaces (if a purchase doesn’t come through), affecting startups and businesses that rely on such spaces. This could also lead to increased scrutiny and caution from investors in this sector, despite the fact that experts believe WeWork does not reflect the overall health of the coworking industry. IWG, one of WeWork’s major competitors, recorded a significant 48% profit increase so far in 2023. Other companies are expanding into suburban properties and even international airports to cater to workforce trends. 