{"id":8397,"date":"2023-09-07T21:56:03","date_gmt":"2023-09-07T21:56:03","guid":{"rendered":"https:\/\/prosfunds.com\/markets\/hoping-to-slash-debt-wework-stock-falls-41-in-three-weeks\/"},"modified":"2023-09-07T21:56:05","modified_gmt":"2023-09-07T21:56:05","slug":"hoping-to-slash-debt-wework-stock-falls-41-in-three-weeks","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=8397","title":{"rendered":"Hoping To Slash Debt, WeWork Stock Falls 41% In Three Weeks"},"content":{"rendered":"
\n

In August I proposed five reasons not to bet on WeWork stock. That was before September 5 \u2014 when a stock split aimed at avoiding delisting from the New York Stock Exchange \u2014 went into effect.<\/p>\n

The next day, the <\/em>Wall Street Journal<\/em> <\/em>reported the co-working service was trying to renegotiate the long-term leases that could send the company into bankruptcy.<\/p>\n

Since then \u2014 after a 40-for-one reverse stock split \u2014 WeWork shares have fallen another 41% to trade at $3.31 a share. From a peak private market valuation of $47 billion, the market values WeWork\u2019s common stock at a mere $182 million.<\/p>\n

If WeWork \u2014 which added three restructuring experts to its board last month \u2014 can use the looming threat of bankruptcy to convince landlords to reduce its lease obligations and avoid collapse, its shares would be a bargain.<\/p>\n

<\/fbs-ad><\/p>\n

The odds of pulling that off seem slim because its near-term obligations are so much higher than its cash balance. Yet some experts say landlords may prefer renegotiation to fighting for scraps in court.<\/p>\n

I have contacted WeWork for comment and will update this post if I receive a response.<\/p>\n

WeWork\u2019s Cash And Financial Obligations<\/h2>\n

Without an investor willing to finance its losses, WeWork\u2019s business model does not make sense to me. It took out discounted long-term leases from landlords and subletted desks for short-term leases to entrepreneurs and small businesses, noted the Journal<\/em>.<\/p>\n

When SoftBank was pouring billions of dollars into WeWork, its valuation peaked at $47 billion. After the IPO market shut down in late 2021 and a pandemic that made it clear people could work from home rather than renting a desk from WeWork, investors have become less keen on the company.<\/p>\n

WeWork\u2019s cash position is shaky. It immolated $530 million during the first six months of 2023, ended June with $205 million in cash, and last week borrowed $313 million from SoftBank, the Journal<\/em> reported.<\/p>\n

Meanwhile, it faces much larger financial obligations. Public filings indicate WeWork must pay an estimated $10 billion in lease obligations between the second half of 2023 and the end of 2027 \u2014 with $15 billion more starting in 2028.<\/p>\n

Additionally, WeWork\u2019s liabilities have exceeded its assets by an increasing amount between June 2022 and June 2023 \u2014 yielding negative equity which rose from $2.3 billion t0 $3.6 billion, the Journal<\/em> reports.<\/p>\n

WeWork\u2019s Plan To Renegotiate \u2018Nearly All\u2019 Its Leases<\/h2>\n

WeWork is \u201chere to stay,\u201d according to a September 6 letter from CEO David Tolley. His survival plan hinges on renegotiating \u201cnearly all [WeWork\u2019s] leases.\u201d According to CNBC<\/em>, WeWork expects \u201cto exit unfit and underperforming locations and to reinvest in our strongest assets as we continuously improve our product.\u201d<\/p>\n

In retrospect, I am amazed landlords thought WeWork would have enough cash to meet its lease obligations \u2014 perhaps they thought SoftBank would make the payments. It is unclear whether landlords will go along with Tolley\u2019s plan.<\/p>\n

The answer depends on whether landlords see bankruptcy proceedings \u2014 which would allow WeWork to reject undesirable contracts and extinguish its liability for resulting damage claims \u2014 as worse for them than renegotiating leases out of bankruptcy.<\/p>\n

After all, landlords who are parties to such rejected contracts would be deemed unsecured creditors and go to the bottom of the pile of bills to be repaid.<\/p>\n

Can WeWork Convince Landlords To Reduce Its Lease Obligations?<\/h2>\n

Experts think some renegotiation will happen. I doubt the result will make WeWork profitable. Here are the opinions of five experts:<\/p>\n