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SoftBank Funded WeWork, Formerly The Most Valued US Startup, Filed For Bankruptcy

SoftBank Funded WeWork, Formerly The Most Valued US Startup, Filed For Bankruptcy
WeWork, the startup funded by SoftBank Group whose quick rise and fall changed the office industry worldwide, filed for bankruptcy in the United States after its investments in businesses utilising more of its office-sharing space went bad.
SoftBank, a Japanese technology giant that owns around 60% of WeWork and has contributed billions of dollars to its turnaround, has acknowledged through this move that the company would not be able to exist until it renegotiates its expensive leases while filing for bankruptcy.
According to a WeWork representative, under a restructuring support agreement, around 92% of the company's lenders have consented to convert their secured debt into equity, wiping away roughly $3 billion in debt.
The company stated that it expects to have the financial liquidity to carry on with business as usual and that these procedures would not have an impact on its sites outside of the United States and Canada, nor on its franchisees worldwide. The company also plans to launch recognition proceedings in Canada.
As of the end of June, WeWork offered office space at 777 sites across the globe.
According to SoftBank, WeWork's restructuring support agreement was the right course of action for the company to restructure its operations and get out of Chapter 11 procedures.
"SoftBank will continue to act in the best long-term interests of our investors," the Japanese company said in a statement
WeWork's stock price has dropped by almost 98.5% so far this year.
As WeWork struggles with costly leases and corporate clients quitting due to a shift towards people working from home, profitability has proven elusive. When WeWork last released financial statistics in the second quarter of 2023, rent payments accounted for 74% of company revenue.
As of June 30, WeWork reported assets of $15.06 billion and liabilities of $18.66 billion in a filing with the New Jersey bankruptcy court.
"WeWork could use provisions of the U.S. bankruptcy code to rid itself of onerous leases," law firm Cadwalader, Wickersham & Taft LLP said in a note to landlords on its website in August. Some landlords are bracing for a significant impact.
"As part of today's filing, WeWork is requesting the ability to reject the leases of certain locations, which are largely nonoperational, and all affected members have received advanced notice," the company said in a statement.
WeWork, founded by Adam Neumann, has amassed a $47 billion valuation, making it the most valuable U.S. startup. Blue-chip investors like SoftBank and venture capital company Benchmark made investments in it, and major Wall Street banks like JPMorgan Chase supported it as well.
Neumann's erratic behaviour and his quest for rapid expansion at the expense of earnings resulted in his termination and the failure of an IPO in 2019.
After being compelled to increase its stake in WeWork, SoftBank appointed seasoned real estate professional Sandeep Mathrani as its CEO. At a $8 billion value, SoftBank struck a deal in 2021 to merge WeWork with a buyout firm and go public.
WeWork was able to save approximately $12.7 billion in fixed lease payments by amending 590 leases. However, this was insufficient to make up for the COVID-19 pandemic's aftermath, which forced office workers to stay at home.
Many of its landlords had little reason to give WeWork a break on the conditions of their leases because they were also feeling the pinch.
Although WeWork was somewhat successful in attracting big corporations as clients, the majority of its clients were startups and smaller companies that reduced their expenditures when inflation surged and the economy worsened.
WeWork's problems were made worse by competition from its own landlords. In response to the decline in the office market, commercial real estate companies that had previously only gone into long-term rental agreements began to offer short-term, flexible leases.
David Tolley, a veteran investment banker and private equity executive, succeeded Mathrani as CEO of WeWork this year. Tolley helped the indebted satellite communications firm, Intelsat, escape from bankruptcy in 2022 while serving as chief executive of Intelsat.
Even though WeWork restructured its debt, it was unable to avoid going bankrupt. In order to gain more time to negotiate with its creditors, the company last week successfully obtained a seven-day extension on an interest payment.
Neumann made a statement not long before WeWork declared bankruptcy, saying, "I believe that, with the right strategy and team, a reorganisation will enable WeWork to emerge successfully."
SoftBank's stock, which has essentially written down its WeWork investment over the years, fell 0.08% in Tokyo on Tuesday, outperforming a 1.3% decline in the overall market.

Christopher J. Mitchell

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