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One of the many problems at WeWork is that it doesn’t really own much of value. It’s a real estate company with no real estate. The company has extensive lease obligations to the landlords who actually own the buildings where it operates; its main offsetting asset is future revenue from WeWork members, but the size of that “asset” is highly speculative and not enough to make the company profitable in the present. A lender or an equity investor cannot be terribly confident about relying on the promise of sufficient future revenues to cover the company’s expenses. Nonetheless, WeWork sold $702 million worth of bonds last year at an interest rate of 7.875 percent. At the time, The Wall Street Journal reported that potential bond investors were concerned about WeWork’s “minimal assets, sizable lease obligations, negative cash flow and strategic challenges as the company expands beyond high-rent cities like New York and San Francisco,” but were nonetheless “comforted by the support it has won from equity holders such as SoftBank Group.” Of course, all those aforementioned challenges remain, while SoftBank has sharply revised down the value it’s willing to ascribe to WeWork, plus the company has been losing even more money and is facing a preliminary investigation by the SEC. As such, the value of those bonds has crashed, and they are now yielding 16 percent. |
