WeWork: flexible office space, inflexible capital structure

The alleged appeal of WeWork’s office space rentals is flexibility for workers and companies who do not want to make onerous long-term commitments. The capital structure of the company, best known for the shambolic failure of a 2019 float attempt, is less forgiving.

The business just reported its 2022 full-year financials, which included an annual cash burn figure of under $1bn. Results improved through the year. Cost cuts, and improving occupancy even yielded WeWork’s first positive ebitda in the month of December.

This, please note, was normal adjusted ebitda — not the “community-adjusted ebitda” evangelised by ousted founder Adam Neumann.

Still, the company’s shares trade at under $2 per share, implying a market capitalisation of some $1bn. Year-end gross debt was $3bn. Junior bonds due in two years are trading at under 60 cents on the dollar. The distressed prices of debt and equity suggest that a balance sheet restructuring will become necessary. Claimants could get large haircuts from a company once valued at $47bn.

WeWork insists that hybrid and flexible work make it an essential business to the future economy. Bearish investors worry about the permanence of the work-from-home trend along with the dependence of the business on general employment levels. Overall, joblessness remains low but knowledge workers who frequent urban co-working spaces have been hit hard by job cuts

At the least, the company is in a race to increase revenue while slashing costs before its currently estimated liquidity of $1.5bn, mostly in the form of undrawn debt, runs out.

The hustling has begun. In recent weeks, WeWork extended the maturity of a letter of credit that was set to expire this year. It has also accessed another $250mn of debt to boost its liquidity.

That infusion came from SoftBank which also happens to own a majority of the company’s shares. The Japanese investor still figures as backer of last resort to WeWork. Unless the modest trickle of profits quickly turns into a flood, debtholders will have to hope SoftBank has a cunning plan to forestall a restructuring.

The Lex team is interested in hearing more from readers. Please tell us what you think of WeWork in the comments section below.