WeWork said Monday it will shed $4 billion in debt and get $450 million in new financing to get out of bankruptcy without being sold to its co-founder and former CEO Adam Neumann, the architect of its spectacular rise and fall.
The deal must still be approved by WeWork’s creditors, Bloomberg reported.
Of the new money, $337 million will come from tech company Yardi Systems and $112 million from bondholders. Yardi has been working with WeWork for a while.
In a statement, WeWork CEO David Tolley said, “Over the past six months, we have worked extremely hard to develop a plan for a reorganized WeWork that is better capitalized, more operationally efficient, and positioned for continued investment in our products and services and a return to long-term growth.”
Growth, however, was a main driver of WeWork’s downfall, as Neumann madly signed expensive leases in the mid 2010s that largely proved unprofitable. Only by declaring bankruptcy was the firm able to exit or renegotiate many of those deals.
But that left WeWork vulnerable to an effort by Neumann to buy the company that got rid of him — at an enormous cost — in the wake of its failed IPO in 2019. Neumann put together some investors and vowed that his new company Flow would beat any offer for WeWork by 10 percent, but his former firm never extended him a non-disclosure agreement that would allow him to see WeWork’s books and make a formal bid.
In the new deal, Yardi LLC Cuper Grimmond will get a 60 percent equity stake in WeWork, a group of lenders will get 20 percent and another, including longtime WeWork investor SoftBank, will get the remaining 20 percent.
Neumann signaled a legal challenge to the agreement.
“After misleading the court for weeks, WeWork finally admitted it is trying to sell the company to a group led by Yardi for far less than we are continuing to propose, so we anticipate there will be robust objections to confirming this plan,” a lawyer for Flow said in a statement reported by Commercial Observer.
A challenge could also come from any creditors who will emerge empty-handed, or nearly so, from the bankruptcy. But a committee of unsecured creditors said at a bankruptcy hearing Monday that it supported WeWork’s new plan. Objections were raised by primarily by Neumann’s attorney, but also by several landlords and CoStar.
SoftBank had been a major enabler of WeWork’s frenetic growth as a private company, pouring in investments that, along with other sources, valued the company at $47 billion at its peak. The company’s market capitalization is now $8 million, as its share price rose 15 percent Monday on the news.
Typically, holders of common stock are wiped out in a Chapter 11 bankruptcy, but sometimes an insolvent firm’s share price will bounce around wildly as it goes through reorganization.