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WeWork bailed out by SoftBank again

SoftBank is adding $1.1 billion to its WeWork commitment as the co-working company continues to fight for its survival, according to Bloomberg. Executive Chairman Marcelo Claure and CEO Sandeep Mathrani have been focused on slashing costs after Adam Neumann was ousted from the firm last year. 

  • Heard on the Street: WeWork CFO Kimberly Ross attributed the company’s misfortune and declining membership to Covid-19, which is myopic. The co-working firm was in trouble long before the pandemic and seems too big to fail for SoftBank. 
  • By the numbers: While WeWork’s second-quarter revenue rose 9% to $882 million from a year earlier, that marked a decline from its $1.1 billion haul in this year’s first three months. The company’s membership base fell 12% to 612,000 in the second quarter from that prior period. Its cash burn — or free cash outflow — was $671 million in the quarter, due to $116 million in non-recurring restructuring expenses which included severance linked to layoffs. 
  • How we got here: The new investment from SoftBank comes after its Vision Fund recorded losses after writing down WeWork’s valuation to $2.9 billion, down more than 90% from its $47 billion peak. SoftBank has invested more than $10 billion in WeWork. The new debt financing replaces a $1.1 billion commitment that was conditional on the tender offer agreed to last October.
  • How the market views WeWork: The company’s $669 million of 7.875% senior unsecured notes due May 2025 last traded on Aug. 5 at 70 cents on the dollar, more than double a low of 35.25 cents on the dollar in March, according to Trace data.
  • History repeating itself with the notable difference being SoftBank’s repeated bailouts: WeWork competitor IWG (Regus) was the office darling of the dot-com era. When the downturn came, tenants dried up and the company had no way to pay for its ‘debt-like’ leases. It filed for Chapter 11 bankruptcy protection in the U.S. and retained its U.K. stock-market listing. Shares of IWG are currently down 38% year to date, and has a market capitalization of $2.78 billion.
  • Regus has the last laugh: IWG (AKA Regus) has made its first move to capitalize on the retrenchment of WeWork, taking over a Hong Kong office vacated by its rival, the Financial Times reported. The switch in tenants underscores the divergence in fortunes between the two companies. The WeWork rival recently raised $430 million in via share placing, which it intends to use to fund an expansion and invest in distressed opportunities. [Bloomberg+FT]

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