WeWork, a flexible office space provider, has declared Chapter 11 bankruptcy in New Jersey, USA. In its petition filed in a federal court in New Jersey, the New York-based firm—which at its peak had raised over USD 22 billion and was valued at USD 47 billion—listed both its assets and liabilities in the USD 10 billion to USD 50 billion range.
Approximately 90% of WeWork's lenders have consented to convert the USD 3 billion debt into equity, according to CEO David Tolley. In a statement, he said, “Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet." The statement also mentioned that the bankruptcy filing is restricted to its locations in the United States and Canada.
Being mostly owned by Embassy Group, WeWork India has grown to be one of the strongest WeWork franchisees and is therefore protected from bankruptcy. The head of the India unit said in a statement today that the unit is profitable and does not require outside funding to run.
WeWork is currently dealing with the consequences of its rapid expansion, which left it with a portfolio full of underperforming properties. This is a significant downfall for the formerly successful startup, co-founded by Adam Neumann and supported by SoftBank, BlackRock, and Goldman Sachs.
During the late 2010s, when the market was at its peak, the company signed long-term leases. After renovating these locations, it leased them out for as little as one month. The pandemic reduced demand for shared workspaces, which resulted in more vacancies and ongoing financial obligations to landlords worth billions of dollars in rent. This presented significant challenges to the company's strategy.
In 2019, WeWork encountered obstacles during its attempt to go public, primarily due to concerns about financial losses and corporate governance issues. This led to the abandonment of its initial public offering and the departure of its CEO, Neumann.
Following Neumann's departure, WeWork and SoftBank settled in 2021 at a high cost. Ultimately, the business went public at a USD 9 billion valuation through a merger with a Special Purpose Acquisition Company (SPAC), and by 2024, it was expected to turn a USD 2 billion profit from cash operations.
Neumann voiced his disappointment with WeWork's declaration of bankruptcy and said, "It has been difficult for me to watch from the sidelines as WeWork missed the opportunity to capitalise on a product that is more relevant now than ever," in a statement on Monday.
This year, WeWork reorganised its balance sheet, postponing debt maturities until 2027 and cutting debt by USD 1.5 billion. In spite of these initiatives, the company's market value has fallen to less than USD 50 million, and bonds are currently trading at distressed levels. Bankruptcy may result in the cancellation of current shareholder shares.
WeWork openly acknowledged "substantial doubts" about its ability to continue in its August earnings disclosure.
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