We Work, rebranded as We Company.
The money-losing office-space manager is seeking to raise as much as $3 billion to $4 billion in coming months through a debt facility that could grow as big as $10 billion over the next several years. This debt offering would be independent of the money WeWork raises in its initial public offering and could even raise more money for the company than the IPO itself.
Workspace raising cash that could help it dodge issues that plagued Lyft and Uber debut. WeWork Cos. has a plan to shore up confidence in its business before it goes public by offering billions of dollars in debt that would fund its growth until it can turn a profit.
The huge capital raise even before the IPO reflects the scepticism surrounding well-known companies like Lyft Inc. and Uber Technologies Inc. that have racked up steep losses and gone public with much fanfare but without much trading success. Both Lyft’s and Uber’s stock prices are below where they went public—and even further below lofty pre-IPO expectations of how high they could trade.
WeWork, which lost $1.9 billion last year, has been dogged by comparisons to Uber and Lyft and haunted by a huge planned investment from SoftBank Group Corp. that fell apart after some key investors balked at the plan.The cash from this debt facility could help shore up demand for the IPO, in part by showing the company will be able to fund growth for years without having to turn again to equity markets. Goldman Sachs Group Inc. and JPMorgan Chase & Co. are structuring and backing the deal.
WeWork’s primary business is to rent long-term spaces, renovate them, then divide the offices and sublease them on a short-term basis to other firms. The company owns few properties,. WeWork would use the cash flows it generates from individual buildings to fund the interest payments on the debt,
Raising as much as $4 billion in the debt markets is a rarity for a company with WeWork’s financial profile, Historically unusual move for money-losing companies—raising debt of this size through cash flows is a rare, if not unprecedented,
By raising billions in new debt, WeWork would have less of a need to raise money from potential public stockholders. The IPO still would likely raise several billion dollars. Because investors in WeWork’s potential new debt facility would get access to cash flow from WeWork’s buildings in the U.S., Europe and Latin America to fund debt payments, the company could raise money at a lower interest rate than it could get in the corporate bond market, where its bonds trade at a high risk premium over safe government debt.
WeWork last year raised a significantly smaller chunk of debt—$702 million—at a high interest rate of 7.9%, and the bonds were assigned ratings in junk territory.
The debt deal is designed to help WeWork showcase the value of its leases and the cash flows from them, It is also expected to show that profitability is something within the company’s control, much of its loss-making comes from growth efforts.
WeWork has posted rapid revenue growth, but its losses have been ballooning at a similar clip. The nine-year-old New York company’s $1.9 billion loss last year outstripped the $1.8 billion of revenue it generated. Its huge losses mean it has a ravenous appetite for cash.
It was last valued at $47 billion when it raised capital from SoftBank earlier this year., SoftBank also bought shares from WeWork employees and investors at a valuation of around $23 billion, giving the company a blended valuation of around $36 billion.
it is likely to be valued lower than its $47 billion valuation in its IPO, but this debt deal could help boost its public valuation.
Late last year, ahead of Uber’s and Lyft’s offerings, WeWork had been discussing a potential deal with SoftBank that could have made an IPO unnecessary for years. SoftBank was considering investing as much as $16 billion into the real-estate company—$6 billion of new money and $10 billion to buy shares from existing investors. But the deal crumbled after some investors expressed concerns over WeWork’s high valuation, and the firm instead invested $1 billion directly in WeWork and bought another $1 billion of existing shares.
WeWork, which confidentially filed for an IPO late last year, has aspirations to be more than a real-estate company. WeWork aims to position itself like a tech company, pointing to its rapid growth and various services it eventually hopes to offer that cater to its tenants.