WeCrash

Just days after it began trading, WeWork's freshly minted $702 million bond issue is crashing as the massively over-subscribed junk bond issue sees dramatic buyer's remorse...

The high yield bond sold for par last week and is now trading with a 95 handle, which, as Bloomberg reports, stands in sharp contrast to the outsized orders the company saw when it marketed its debt in primary markets last week.

The company had initially sought to issue $500 million of the securities, but decided to upsize once the orders came pouring in, a person with knowledge of the situation said. The seemingly odd-lot number of $702 million was chosen in part because the company considered it a lucky number, another person said.

WeWork’s deal underscored the risks investors have been willing to take in the new-issue market as they struggle to find high-yielding assets. The office-space leasing company joined a wave of high-flying cash-burning firms that have managed to recently tap debt markets, like Uber Technologies Inc. and Netflix Inc.

The bond was the most active in the U.S. high-yield market on Monday, Trace data show.

While Bloomberg puts this down to simply "buyer's remorse" - we suspect it has more to do with the company's financials actually being exposed to the cold light of day.

What is WeWork's EBITDA? Simple - whatever you want it to be (via 'community' adjustments)...

And Wolf Richter broke down all the details of the farcical bond issue last week...

Fitch, which rates the bonds three notches into junk (BB-), pointed out that WeWork already has existing debt consisting of a $650 million revolving credit facility and $500 million letter of credit reimbursement facility.

WeWork also has $5 billion in lease payments due over the next five years, not including any additional leases it will sign during its global expansion drive:

2018: $706 million
2019: $984 million
2020: $1.1 billion
2021: $1.1 billion
2022: $1.1 billion

Another $13 billion in lease payments come due in the years after 2022, according to Bloomberg. That’s some real money that a money-losing company must somehow obtain.

These are 10-year or 20-year office leases. They’re a fixed expense that doesn’t decline when business drops off. As such, they pose a special risk: WeWork’s customers rent their space on much shorter terms, even month-to-month. When things get tough, they can just ride off into the sunset after their short-term leases expire, leaving WeWork to sit on expensive and vacant office space with stale craft brew on tap at the lounge.

...

Investors in junk bonds of such cash-burning unicorns take only slightly less risk than late-stage equity investors, but have zero upside. All they get is the yield for however long the company manages to pay the coupon, and if they’re lucky, they get their money back when the bonds mature. That’s the best-case scenario. There is no upside.

Read more here...

Of course, WeWork is not the first to burn greedy HY investors looking for a high yield with no risk...

Netflix is sliding...

Tesla has tumbled since issuing debt...

And PetSmart has collapsed...

And then of course - there's the Norwegian Wild West junk markets...

Comments

Solosides NoDebt Tue, 05/01/2018 - 14:36 Permalink

These new "collaborative office spaces" I see advertised everywhere now are actually a clever way of hiding the fact that normal people in America can no longer afford a real office space. So instead they give those empty offices a new coat of paint, turn them into timeshares, and then hawk them unto trendy dipshits as "collaborative, innovative workspace"

In reply to by NoDebt

wetwipe Solosides Tue, 05/01/2018 - 15:04 Permalink

One of the often overlooked benefits of these so called "collaborative, innovative workspace" is that you get to network with other broke gig-job millennials who can't afford a proper office either.. Its a win-win situation which is going to propel the economy in to the stratosphere.

We live in truly hellish times.... Thank god for my support group on FaceBook. 

 

 

In reply to by Solosides

G-ray Solosides Tue, 05/01/2018 - 15:07 Permalink

LOVE IT.   They are building a HUGE one of these things blocks from where I live in Seattle (ballard shit hole).  Dug down 40 plus feet and are just finishing the foundation work.   I can not wait for these arrogant, smug, over-valued tech motherfuckers to take a hard hit and experience the taste of reality.  Motherfuckers are like locust. 

In reply to by Solosides

Solosides G-ray Tue, 05/01/2018 - 17:53 Permalink

Oh! Another survivor in this hellhole called a city. You understand my pain. Those shitholes are just starting to appear here in the southside. Plus our tax dollars just built Boeing and the FAA shiny brand new offices in the middle of Des Moines. Traffic is going to go from hell, to inescapable purgatory.

In reply to by G-ray

spastic_colon Tue, 05/01/2018 - 14:12 Permalink

"..........stands in sharp contrast to the outsized orders the company saw when it marketed its debt in primary markets last week."

Wall Street at its best......buyer beware.....and do some research

falak pema Tue, 05/01/2018 - 14:56 Permalink

The biggest junk news you see at the ZH is summarized in these  phrases :

1° I express my belief in the 1st Amendment of free speech by stating : Hate Speech is the essence of free speech. Heil Hitler.

2° I also express my belief in the 2nd by saying : Shoot first and ask questions afterwards. It never failed Big John Wayne!

3° I also express my beliefs as what concerns the 4th estate :

If you have to choose between the truth and the myth; you chose the myth!

And if you say to me : You betray Aristotle and Jefferson!  

I say : let those pagans die in hell !

And if you quote me Hannah Arendt : 

"The difference between fact and fiction, between true and false, no longer exists under totalitarian rule."-- H. Arendt

And I reply : "for shucks sake she was a tribe member"... 

Then  I add : "I am happy to sing : Arbeit macho frei .... 'Cos I go all the way!"

And unbelievingly when I say : "'Cos you are ethically blind as a bat! And you  are lost in the fog of obscurantism; like McNamara was lost in the "fog of war"; like the Duck is lost in "the fog of #Maga!"... 

And you reply : "I, as a paleo-anarcho libertarian, who hates Jesus's "let the meek inherit the earth" and his "social-commie construct"; I who love "blood line and racial hierarchy" of "white man's burden"; say ...."

Blankfuck Tue, 05/01/2018 - 17:36 Permalink

HUH? CRASH? WT FUCK? FAKE NEWS! NO CRASH!

REMEMBER WHO IS CONTROL HERE!

           ITS THE FED RESERVE PRESERVE FUCKTARDS!

                  ITS JUST A GAY OLE TIME!

ITS ALL ABOUT THE PONZI COMPANY BUYBACKS! OH EARNINGS PER SHARE SHINE WITH THAT JUICE!  THOSE MULTI CEO BILLIONAIRES JUST STUFFING THEIR POCKETS WITH PRINTED YUM YUM PONZI MONEY!

AND THE PONZI WINS!

LITTLE PEOPLE HOMELESS AND TAXPAYERS ARE THE LOSERS!

YOU OWE TRILLIONS TO KEEP THOSE FED FUCKERS AND BANKTARDS PARTYING! 

KEEP UP YOUR HARD WORK LITTLE PEOPLE-ITS PAYBACK THE DEBT TIME!

YOU ARE GAURANTEED BROKE LITTLE ONES! YOU ONLY WILL DREAM WHAT THE FED-FUCKERS AND BANKTARDS HAVE AND OWN

GotGalt Tue, 05/01/2018 - 17:50 Permalink

Junk bonds *is* the bubble just waiting for the pinprick.  Too bad there aren't many ways to play the coming carnage for small fish investors that don't have access to CDS market.