WeWork Reaches a Debt Restructuring Deal With SoftBank
The agreement will reduce the company's debt, giving it more financial breathing room.
WeWork, the struggling company that rents office space, announced Friday that it had reached an agreement with SoftBank and other investors in order to reduce its debt and obtain new financing.
According to WeWork, the agreement will cancel or convert into equity approximately $1.5 billion of its debt. This will reduce the total amount of debt to WeWork to less than $2.4 Billion. The company will also have to repay $1.9billion of its debt by 2027, two years after the debts mature.
This deal is the culmination of a turbulent ride for WeWork. Once regarded as one of the most promising and valuable start-ups, it was once considered to be the best. SoftBank backed the company founded by Adam Neumann. The company leased short-term office space to large companies, small businesses, and individuals to disrupt the monotony of commercial real estate.
However, that business model did not live up to the visions of Mr. Neumann or Masayoshi son, founder and top executive of SoftBank. SoftBank spent billions to keep SoftBank going after the company abandoned an initial public offering in September 2019.
Another major blow was dealt by the pandemic, which greatly reduced demand for office space. WeWork has made significant progress in becoming a sustainable company over the past few years by cutting down on costs through renegotiating and terminating commercial leases. However, the company is still unprofitable and has a lot of debt.
Friday's deal will significantly reduce the debt and increase cash flow by $290 million. It also gives WeWork access to $475 millions in new financing commitments. WeWork stated that it is ideally placed to take advantage of the global shift away from traditional offices towards flex.
WeWork shareholders will have the right to vote on the terms and conditions of the debt restructuring. Bondholders will also be able to approve the plan.
On Friday, the stock price of the company was flat at $1. After WeWork, its shares were worth more than $8 by the end of 2021.