WeWork, the once-prominent desk-renting start-up, has filed for bankruptcy following a steep decline in its fortunes. The company, which aimed to revolutionize the office real estate industry, was unable to overcome challenges posed by expensive leases and weak occupancy rates brought on by the rise of hybrid working.
Late on Monday, WeWork announced that it had reached an agreement with the majority of its creditors to convert $3 billion of existing loans and bonds into equity. This move comes as part of the company’s efforts to restructure its lease obligations, which currently exceed $13 billion. WeWork CEO David Tolley emphasized that the focus of the restructuring process will be on addressing legacy leases and improving the company’s balance sheet.
In its bankruptcy filing, WeWork requested to terminate 69 leases, citing the need to rationalize its office portfolio as critical to its restructuring efforts. The company has been engaged in negotiations with over 400 landlords to improve lease terms.
Despite the bankruptcy filing, WeWork assured that its office spaces remained open and operational, and that its international business outside of the US and Canada remained unaffected.
WeWork’s fall has been seen as a symbol of the excesses of the era of cheap money. At its peak in early 2019, the company was valued at $47 billion, attracting significant investment from SoftBank and its Vision Fund. However, mounting losses and rising interest rates led to a decline in its fortunes.
WeWork co-founder Adam Neumann, who once epitomized the charismatic entrepreneur, expressed disappointment at the company’s current situation. Neumann had previously predicted that a reorganization would allow WeWork to emerge successfully.
The bankruptcy filing is the latest setback for the office property sector, but industry experts noted that WeWork locations were typically situated in struggling second-tier buildings.
WeWork had previously filed a preliminary IPO prospectus in 2019, but the offering was dropped due to concerns about heavy losses and corporate governance. Neumann stepped down as CEO that year, and in 2021, WeWork and SoftBank settled litigation with him.
WeWork went public in 2021 through a Spac merger at an enterprise valuation of $9 billion. However, the company’s most recent quarter showed an occupancy rate 10 to 15 percentage points below forecasts, and cash operating profit remained negative in the first half of this year.
In an attempt to address its financial challenges, WeWork completed a balance sheet restructuring earlier this year. However, the company’s market capitalization has since plummeted to just $40 million, and existing shareholders are expected to have their shares cancelled in the bankruptcy. WeWork’s bonds are also trading at deeply distressed prices.
WeWork anticipates that the bankruptcy process will be completed in less than seven months.