WeWork downgraded after skipping $95M in payments

Co-working company’s credit rating can’t fall much further

Fitch Downgrades WeWork After Fading Firm Skipped Payments
A photo illustration of WeWork interim CEO David Tolley (Getty, WeWork)

After WeWork skipped $95 million in interest payments, Fitch Ratings didn’t skip the chance to ding the co-working company’s credit rating.

Late last week, Fitch announced that it downgraded the rating from a CC to a C. The former signaled that a default seemed probable; the latter indicates that a “default-like” process has already begun.

Only two credit ratings on the Fitch scale are worse: RD (restricted default) and D, the dreaded default. A bankruptcy filing would take WeWork there, but the firm is trying to avoid that by renegotiating leases and debt.

Fitch rates the likelihood that WeWork will repay its $1.4 billion in debt. The credit ratings agency cited WeWork’s decision last week not to make approximately $95 million in interest payments as rationale for the downgrade.

WeWork said it had enough cash to make the payments but chose not to as a tactic to open negotiations with lenders. Interim chief executive officer David Tolley said lenders would “absolutely understand” the company’s decision. Investors, who have sent WeWork’s share price down 28 percent in the past month, weren’t as forgiving.

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Months ago, WeWork worked with lenders, including SoftBank, to cancel or convert into equity approximately $1.5 billion of debt, giving the firm until 2027 to repay much of it. The commercial real estate market recovery that move was reliant on, however, has yet to materialize.

Last month, WeWork announced its intention to renegotiate “nearly all” of its leases. A spokesperson later clarified that WeWork wanted to stay at its buildings, but needed increased flexibility from landlords.

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In August, WeWork had revealed “substantial doubt” about its ability to keep operating. The company has lost $11.4 billion since the start of the pandemic and its stock price plunge forced the company to execute a 1-for-40 reverse stock split to remain on the New York Stock Exchange.

WeWork’s stock was up 5.5 percent Tuesday to $2.21. The stock is down 96 percent year-to-date, though, and nearly 98 percent in the past 52 weeks. The stock has lost more than 99 percent of its value since WeWork went public.