WeWork default is a real possibility, Fitch Ratings warns

New York

FITCH Ratings downgraded troubled co-working company WeWork, and warned that the once high-flying startup could default on its obligations.

On Thursday, the agency said it lowered the company's long-term issuer default rating to CCC from CCC+. That indicates "substantial credit risk" and suggests "default is a real possibility", according to Fitch's rating scale.

Fitch cited the effects of the Covid-19 pandemic on WeWork's already struggling business model. The startup tried and failed to go public late last year. The spread of Covid-19 worsened WeWork's predicament as people opted to work from home, rather than in the communal offices the company rents out.

WeWork leadership has maintained that as businesses look for more flexible options for office space, they will increasingly turn to WeWork's buildings.

The pandemic could upend the traditional office market, sending more people looking for independent work space. But if a fresh wave of Covid-19 cases materialises, Fitch estimated that WeWork would burn through about US$1.5 billion of cash in both 2021 and 2022. In that case, WeWork would have to seek "additional liquidity, the availability of which is highly uncertain", it said.

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While WeWork's largest investor, SoftBank Group Corp has provided substantial support to the company, "it is unclear that further funding would be available in a distressed scenario", Fitch wrote. BLOOMBERG

READ MORE: A restrained telling of the rise and fall of WeWork's Neumann