By Anton Bridge
TOKYO (Reuters) - WeWork's $3 billion debt for equity swap deal with its creditors marks the latest effort by top shareholder SoftBank (TYO:9984) to revive the troubled office-space provider and recoup some of the billions it has invested.
Whether the bet succeeds now depends on WeWork renegotiating the costly long-term leases it signed during the boom years and is now unable to pay, forcing it to file for bankruptcy on Monday.
WeWork's long-term lease obligations of $13.3 billion accounted for more than 70% of its total debt as of end-June.
Those deals, many agreed during a period of breakneck growth under founder Adam Neumann, became a crippling burden as the post-COVID shift towards working from home led to a plunge in demand for office space. Neumann quit as CEO in 2019, bowing to pressure from some investors.
WeWork renegotiated some of its leases to reduce its obligations by more than $2 billion since the end of 2022.
But this did little to ease its cash crunch. Lease payments consumed nearly three quarters of its revenue in the second quarter of 2023, the last time it reported financial results.
LIMITED EXPOSURE
WeWork's dramatic fall followed lavish predictions about its prospects from SoftBank founder Masayoshi Son, despite immense losses as it grew.
Son made his name and fortune through high conviction bets on disruptive technologies, but his unbridled enthusiasm for WeWork tarnished his reputation for picking winners.
Nevertheless, SoftBank's exposure to WeWork is limited, as it has written down most of its investment in the company over the years. Still, it had a credit support deal with the company worth $1.1 billion as of end-June.
MST Financial analyst David Gibson said the credit support was significant, but it was not clear how much of it had been withdrawn.
SoftBank declined to comment on the credit support. It said earlier on Tuesday that it believed WeWork's restructuring deal was the appropriate action for the company to reorganise its business and emerge from bankruptcy proceedings.
"SoftBank will continue to act in the best long-term interests of our investors," it said.
WeWork's early expansion made it a symbol of how SoftBank's big bets were changing the face of startup and technology investment.
But its downfall cemented it as a cautionary tale about Son's appetite for risk.
A month after SoftBank spent more than $10 billion to bail out WeWork when an attempted initial public offering flopped in 2019, a chastened Son said his judgement in dealing with the company had been "poor" in many ways, a rare admission from an executive known for his ebullience.
SoftBank owns around 71% of WeWork, which it privately valued at $47 billion at its peak but is now valued at just $44 million.
It is not immediately clear how SoftBank's stake might change after the debt-for-equity deal.