CASE PROFILE: WeWork files long-awaited Chapter 11 case with RSA equitizing notes, cutting USD 3bn in debt

Legal Analysis 7 November

CASE PROFILE: WeWork files long-awaited Chapter 11 case with RSA equitizing notes, cutting USD 3bn in debt

Office space provider WeWork Inc and certain debtor affiliates filed their long-awaited Chapter 11 cases last night (6 November) with a restructuring support agreement (RSA) setting up the equitization of its debtor-in-possession (DIP) financing, prepetition letter of credit (LC) facility claims, and first and second lien notes.

The company’s first day declaration from Chief Executive Officer David Tolley hit the docket early this morning but WeWork has not yet filed several key motions, including cash collateral, DIP financing, or a motion to jointly administer hundreds of debtor affiliates. WeWork will seek authority to reject at least 60 “unprofitable” leases immediately and will file a motion to approve procedures to streamline additional lease rejections.

The RSA sets a four-month timeline for the case, requiring the debtors to put a Chapter 11 plan into effect by 5 March 2024.

Debtwire will live blog the first day hearing before Judge John Sherwood of the US Bankruptcy Court for the District of New Jersey on 8 November at 11am ET.

The company

Adam Neumann and Miguel McKelvey founded the company in 2010 in Manhattan’s SoHo neighborhood, renting office space to small businesses and individuals. In addition to the physical office space, WeWork provides various amenities including private phone booths, internet access, printers and copiers, mail and package handling, front desk services, refreshments, and daily cleaning.

The company grew at a staggering rate over the next nine years, peaking at a valuation of USD 47bn in 2019 with 700 locations in 34 countries on six continents with 43.9 million in rentable square feet at the end of 2022.

Along the way, the company received USD 4.4bn in investments from SoftBank in 2017 and another USD 2bn from SoftBank in 2019. As of the petition date, SoftBank held a combined 72.66% of the company’s equity via three affiliates. Cupar Grimmond holds 1.66% of WeWork’s equity.

WeWork has made moves to digitize in recent years, launching the WeWork All Access and WeWork on Demand programs that allowed customers to use pay-as-you-go memberships and book individual workspaces by the hour or conference rooms by the day. The company also created WeWork Workplace, an office management software and data analytics platform.

The debt

WeWork enters Chapter 11 with USD 4.22bn in funded debt in the form of first, second, and third lien secured notes all due 2027, LC facilities, and senior unsecured notes due 2025. SoftBank holds a substantial position in the secured and unsecured notes.

Goldman Sachs and several other financial institutions are the issuers on the LCs. US Bank is the trustee and collateral agent on all of the secured notes. 

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The descent

WeWork’s troubles started, at least publicly, in August 2019, when investors “balked” at the company’s USD 47bn valuation amid “heavy attention” on negative earnings and questions about governance as the company attempted to complete an initial public offering (IPO), according to the first day declaration of CEO David Tolley. Within two months of proposing the IPO, the company withdrew the registration statement and Neumann resigned as CEO.

With a “dire need” for capital in the wake of the failed IPO, a rescue package with SoftBank proposed new financing consisting of USD 1.1bn in senior secured notes, USD 2.2bn in unsecured notes, a tender offer to buy USD 3bn in equity securities at USD 19.19 per share, and the acceleration of SoftBank’s then-upcoming April 2020 USD 1.5bn equity payment obligation. Though WeWork secured the notes, the parties fell to fighting over the tender offer, with the bank terminating the offer citing WeWork’s failure to secure antitrust approvals, complete a rollup of joint ventures with SoftBank in Asia, and inability to resolve ongoing government investigations. WeWork took SoftBank to court, suing in the Delaware Chancery Court, but the parties reached a settlement in February 2021 with SoftBank agreeing to pay half of the original tender offer agreement while capping its voting share in the company at 49.9%.

A turnaround effort was partially stymied in 2020 with the onset of the COVID-19 pandemic, which wreaked havoc on the commercial real estate market as customers moved, in some cases permanently, to remote work. After digitizing certain services, offering discounts to customers, and reaching rent abatements and deferrals with landlords, the company took another swing at an IPO, this time successfully. In October 2021, the company went public via a de-SPAC transaction with BoxX Acquisition Corp, establishing a USD 9.5bn valuation. Throughout the out-of-court reorganizing process, the company amended 590 leases and cut future rent obligations by USD 12bn, according to the declaration.

But WeWork still had not become profitable by early 2023 and implemented a debt exchange, bringing in USD 1bn in new funding and capital commitments while cancelling or equitizing USD 1.5bn in debt and extending the maturity of USD 1.9bn in debt to 2027, from 2025. Looking for a more fulsome restructuring, the company hired a roster of restructuring advisors, including Kirkland & Ellis, PJT Partners, Hilco Real Estate, and Alvarez & Marsal, while negotiating with creditor groups and SoftBank. Along the way, the company in October withheld USD 95.2m in interest payments on its secured notes and USD 78m in rent payments, kicking off a USD 30-day grace period.

WeWork would ultimately enter an RSA with 92% of the secured noteholders, SoftBank, and Cupar and file for Chapter 11 in New Jersey on 6 November.


Source: Debtwire's Restructuring Database


Early this morning, the company filed its RSA as part of Tolley’s first day declaration. The RSA proposes a USD 3bn overall debt reduction and immediate rejection of 60 leases.

That debt reduction comes largely in the form of the equitization of the first and second lien notes along with DIP financing referred to as a Term Loan C DIP. Initial court filings do not provide further information on the DIP.

SoftBank will hold on to its equity stake in exchange for the cancellation of its debt. The bank has agreed to provide cash collateral to partially fund the case.

Third lien noteholders, unsecured noteholders, and general unsecured creditors will share “no less than the liquidation value” of WeWork’s unencumbered assets.

WeWork will raise a new first lien exit term loan facility for the lesser of the amounts drawn on the DIP or USD 100m.

The RSA sets a series of milestones for the case, including a 5 March 2024 deadline to confirm a plan and put it into effect.

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