WeWork misses US$95 million in interest payments
WEWORK said on Monday (Oct 2) that it would not make two sets of interest payments totalling about US$95 million, a move meant to jump-start negotiations with its lenders at the same time as it tries to cut costs with its landlords.
The missed interest payments will undoubtedly spur speculation of a bankruptcy filing. But WeWork says it has the cash on hand, and the company has a 30-day grace period to make the payments, which were due on Monday. At the end of June, it had US$205 million in cash and access to a credit line worth US$475 million.
“I believe they will absolutely understand our decision to enter into the grace period,” WeWork interim CEO David Tolley said in an interview. He called the move “typical” as a “precursor to a conversation”.
Skipping an interest payment is not necessary to negotiate with lenders. But it is a move sometimes used by indebted companies to put pressure on lenders to restrike deals under more favourable terms.
In the first half of this year, WeWork’s operations consumed US$530 million. The co-working company warned investors in August that “substantial doubt exists about the company’s ability to continue as a going concern”, without taking measures such as decreasing its lease costs and making its debt load more manageable.
In early September, WeWork said its lease costs made up more than two-thirds of its operating liabilities, a heavy weight on its cash flow that it was trying to alleviate by renegotiating nearly all of its leases and pulling out of some unprofitable locations.
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“What our lenders will really want to understand is the company’s credit profile when the landlord conversations reach a conclusion,” Tolley said.
Tolley said no decisions have been made about whether the company will file for bankruptcy, a move that would make it easier to shed unprofitable leases.
The announcement that it was skipping interest payments came just months after WeWork struck a deal with its lenders, including SoftBank, to cancel or convert into equity about US$1.5 billion of the company’s debt and give the company until 2027 to repay a large portion of it. At the time, the company expected the troubled commercial real estate market to return more quickly.
The company has been trying to whittle down its lease costs for years, after what Tolley has called a “period of unsustainable hypergrowth”.
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