Investment banks behind WeWork are panicking as it seems a bailout of the company could be imminent, reported Financial Times.
Sources told FT that "fundraising efforts" are currently underway as the company's cash is about to be depleted.
We noted last month that the company lost $690 million in the first six months of the year and is expected to generate a loss from operations approaching $3 billion as it burns through tens of millions in cash daily. Analyst estimate that the company could run out of money by mid-2020.
And now Bloomberg is reporting that WeWork's cash crunch is even more acute:
Analysts had previously estimated that the company would run out of money by the middle of next year. WeWork had been counting on an initial public offering -- and a $6 billion loan contingent on a successful IPO -- to meet its cash needs, but that plan unraveled amid questions about its future profitability...
...it needs new financing before the end of November to avoid running out of money, two people familiar with the matter said.
FT sources are now indicating that a potential lifeline, otherwise known as a bailout, could be imminent.
The bailout of WeWork could be led by JPMorgan Chase and other Wall Street banks. If no cash infusion by late November, WeWork could enter into bankruptcy in 1H20, or by next summer.
Global credit rating agency Fitch Ratings downgraded WeWork's credit rating last week by two notches to "CCC+," putting the SoftBank funded office-sharing company very deep into junk territory.
"In the absence of an IPO and associated senior secured debt raise, WeWork does not have sufficient funding to meet its growth plan," Fitch wrote in a note.
Last month's decision to abandon the IPO deprived the company of $3 to $4 billion in funding and $6 billion in a loan package investment banks promised if it went public.
Since the IPO was pulled and valuations collapsed, WeWork's WE 7.875 01-MAY-2025 junk bond was last trading at about 82 cents on the dollar (as of Friday 6 am est., according to Tradeweb data, a massive discount to face value, which indicates doubts the company can repay its debts.
Without new cash, WeWork is unsustainable; the company could start liquidating its CRE exposure as it begins the inevitable pre-bankruptcy shrinking process -- if no cash infusion next month.
As a result of running out of cash, as Bloomberg warns, WeWork's business model is severely flawed.
"WeWork has raised more than $12 billion to rent office space that it renovates and then leases to companies. But that strategy has left it in a precarious position. It has some $47 billion of future rent payments due. On average it leases its buildings for 15 years. Yet its tenants are committed to paying only $4 billion, and on average have leases for 15 months."
When does the WeWork real estate liquidation sale begin— zerohedge (@zerohedge) September 25, 2019
With the equity market window shut, and credit markets starting to crack, something that we noted on Thursday, the next question is if WeWork gets a bailout next month.
If not, the WeWork implosion of 2020 could be a spectacular mess and a massive headache for SoftBank/Vision Fund and Wall Street banks - as the company crashes from $47 billion valuation to insolvent in 2 months...