Can WeWork’s credit rating get any worse? It just did

Lenders take haircut as firm renegotiates debt down $1.5B

WeWork's Sandeep Mathrani
WeWork's Sandeep Mathrani (Illustration by The Real Deal with Getty)

It might be proof that no good deed goes unpunished, but a ratings agency delivered a blistering critique of WeWork following its debt-relief agreement with its main investor.

S&P Global downgraded WeWork’s credit worthiness to default status Wednesday, prompted by the co-working giant’s deal with Softbank in March.

The agreement eliminates $1.4 billion of WeWork’s corporate debt and extends the maturity of the remaining $1.6 billion by two years, to 2027.

The financial restructuring is “tantamount to a default because we believe lenders will receive less than originally promised,” S&P Global explained.

“WeWork is pursuing this transaction because its capital structure is unsustainable and the company has limited options to reduce its debt burden and improve its cash flow organically,” the agency added.

WeWork declined to comment on the downgrade. SoftBank will convert $1 billion of debt into equity and another $610 million into a mix of debt and equity.

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The ratings agency acknowledged that the debt deal would free up cash by reducing WeWork’s interest cost and reduce its leverage, “which provides the company with financial flexibility, increasing the possibility of eventually reaching free cash flow generation.”

The ratings action comes a day after WeWork disclosed it would pursue a reverse stock split in order to bolster its share price and avoid being delisted by the New York Stock Exchange.

In March, WeWork trumpeted its debt deal with SoftBank and independent bondholders as delivering “a much stronger balance sheet that will enable it to effectuate its business plan” by raising $1 billion including $504 million in new funding, $175 million in capital commitments and $300 million in outstanding secured notes from Softbank.

The flex office provider also reported that it cut its net losses in half last year to $2.3 billion from the year before.

The company views uncertainty in the office market as an opportunity to snap up clients who might otherwise sign a traditional office lease. International clients accounted for 55 percent of WeWork’s 2021 revenue, according to S&P Global.

WeWork reported that its fourth-quarter leasing in New York accounted for 23 percent of total office leasing in the city and its space represented 1 percent of total office stock. In London, the company reported that fourth-quarter leasing accounted for 44 percent of such activity.

Startups, freelancers, nonprofits and other small businesses made up 52 percent of its members at the end of 2021 while large companies made up the rest, according to S&P Global.

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