Co-working space firm WeWork Inc. has filed for Chapter 11 bankruptcy in New Jersey, as per a Bloomberg report.
On November 1, the Wall Street Journal reported that WeWork plans to file its Chapter 11 petition for bankruptcy in New Jersey. The news caused the company stock to tank 50.99 percent.
The New York-based company had early success, skyrocketing to a $47 billion valuation, but the bubble burst on scrutiny. A mismanaged initial public offering (IPO) attempt and troubles related to its co-working model during the COVID-19 pandemic set the ball rolling toward a downhill path.
Less than 5 years ago, WeWork was worth nearly $50 billion and one of the hottest IPOs of all time. The stock is now down 99.8 percent since its IPO and is officially below $1/share.
All the men’s horses
Earlier, Bloomberg reported that WeWork is talking to creditors about improving balance sheets and rationalising its real estate footprint. The company’s regulatory filing on October 31 also showed it had signed a seven-day long forbearance agreement with its creditors on October 30.
A company spokesperson told Bloomberg this agreement would provide “time to continue in the positive conversations with our key financial stakeholders and engage with them to implement our ongoing strategic efforts to enhance our capital structure.”
Forbearance is a lender’s temporary approval to delay loan payments, given in place of compelling the borrower into foreclosure or default.
The spokesperson added that WeWork has “a clear, long-term vision for the future”, but did not respond to other queries, as per Bloomberg.
Background
WeWork kicked off in 2010 during the initial venture capital (VC) boom with co-founder Adam Neumann at the helm. It raised billions and often doubled revenue year-on-year, quickly growing into a global company. It was at one point the US’ most valuable start-up.
Earlier in August this year, WeWork had warned it feared going bankrupt when shares crashed to near zero after the company said there’s substantial doubt about its ability to stay in business as it burns through cash.
WeWork shares have lost nearly all of their value since its debut in October 2021. The SoftBank-backed company has been suffering from hefty losses, corporate governance lapses, and the management style of the founder-CEO Adam Neumann, Reuters reported. A number of executives have left the company, including CEO Sandeep Mathrani in May and three board members in August 2023.
WeWork’s business model includes taking long-term leases and renting out spaces for the short term.
The company’s net loss narrowed to $349 million in the second quarter from $577 million a year ago, but it still burned through $646 million in cash in the first six months of the year. As of the end of June, the company had $205 million cash in hand, according to the Reuters report. WeWork has never turned profitable.
Japanese conglomerate SoftBank, which is one of the major investors in WeWork, has sunk tens of billions to prop up the startup, but the company has continued to lose money.
WeWork India
However, WeWork’s India division said the bankruptcy warning would not affect that unit.
In a statement to Mint, Karan Virwani CEO at WeWork India said, “Today, WeWork Global has made the decision to initiate an important strategic reorganisation process in the US, along with recognition proceedings in Canada. This is a step towards improving its business’ economics, and enabling them to continue delivering best-in-class services well into the future.”
“WeWork India operates independently of WeWork Global, and our operations will not be affected in any manner. It is a separate entity in itself, and we are not a part of this strategic reorganisation process. The Chapter 11 filing does not impact the operations of the global entity as it continues to remain in possession of its business, operating as usual. The process restructures the debts and the leases of WeWork Global in the US and Canada. During this period, we will continue to hold the rights to use the brand name as part of the operating agreement, while serving our members, landlords, and partners as usual,” he added.
WeWork India is backed by Embassy Group. The company has been profitable since 2021, Virwani added.
“We are committed to the robust growth and success of the business and the industry,” he said.