WeWork, the flexible office space company, has filed for Chapter 11 bankruptcy protection, marking a significant downfall for the once high-flying startup co-founded by Adam Neumann and backed by major investors like SoftBank, BlackRock, and Goldman Sachs.
Based in New York, WeWork, which reached a peak valuation of $47 billion and raised over $22 billion, has disclosed assets and liabilities in the range of $10 billion to $50 billion in its bankruptcy petition filed in a New Jersey federal court.
David Tolley, the CEO of WeWork, announced that around 90% of the company’s lenders have agreed to convert their $3 billion debt into equity. Tolley stated, “Now is the time for us to accelerate our path forward by addressing our legacy leases and significantly improving our financial position.”
It’s important to note that WeWork’s bankruptcy filing is limited to its locations in the United States and Canada.
WeWork India, largely owned by the Embassy Group, has proven to be a strong entity within the WeWork franchise and is mostly unaffected by the bankruptcy proceedings. The Indian unit is profitable and doesn’t rely on external capital for its operations, as confirmed by the head of WeWork India in a statement.
WeWork’s stock, which once reached a peak of over $500, has plummeted by 99.8% to less than $1.
WeWork is currently grappling with the consequences of its rapid expansion, which resulted in a portfolio of underperforming properties. During the height of the market in the late 2010s, the company entered into long-term leases, refurbished these locations, and subsequently offered short-term lease agreements as short as one month. The pandemic-induced decline in demand for shared workspaces led to increased vacancies and ongoing financial obligations to landlords, totaling billions of dollars in rent.
The company faced setbacks in its initial public offering in 2019 due to concerns over losses and governance, ultimately leading to the withdrawal of its IPO and the departure of CEO Neumann. Neumann’s departure resulted in a costly settlement between WeWork and SoftBank in 2021. WeWork eventually went public through a SPAC merger, with a valuation of $9 billion and a projected $2 billion in cash operating profit by 2024.
Adam Neumann expressed his disappointment with WeWork’s bankruptcy filing, stating, “It has been challenging for me to watch from the sidelines since 2019 as WeWork has failed to take advantage of a product that is more relevant today than ever before. I believe that, with the right strategy and team, a reorganization will enable WeWork to emerge successfully.”
WeWork undertook a balance sheet restructuring this year, reducing its debt by $1.5 billion and postponing debt maturities to 2027. Despite these efforts, the company’s market value has plummeted to less than $50 million, and the bankruptcy may lead to the cancellation of existing shareholder shares, with bonds now trading at distressed levels.
David Tolley expressed his gratitude for the support of the company’s financial stakeholders, emphasizing their commitment to investing in products, services, and their dedicated team to continue serving their community.
In its earnings disclosure in August, WeWork openly acknowledged “substantial doubts” about its ability to continue operating.
