Via Financial Times

WeWork’s bonds dropped to new lows as investors responded to the expected high cost of a rescue refinancing being put together by the bank that failed to take the company public only a few weeks ago.

WeWork’s bonds maturing in 2025 dropped to 79 cents on the dollar on Tuesday, from over 90 cents on October 11 and following a long weekend that saw the bond market remain closed on Monday. It gives the debt an implied yield of over 13 per cent.

One person who had seen the terms of the roughly $5bn package put together by JPMorgan Chase said they included about $2bn in unsecured debt, structured as payment-in-kind notes and carrying a high coupon of as much as 15 per cent. The structure, which is still being negotiated with investors, reflects the risk lenders would be taking on in financing a company that expects to burn through its current funding by late November.

“People are taking a look and realising the rescue is going to be expensive,” said John Dixon, a high-yield bond trader at Dinosaur Financial Group. “When you see the anticipated funding is going to pay something close to twice what the bond issued last year yielded, then you need to reprice.”

The details of the offer were first reported by Bloomberg. JPMorgan and WeWork declined to comment.

Payment-in-kind notes pay lenders a portion of the interest on the debt with additional bonds, rather than cash. Such notes are rare, said Vicki Bryan, founder of research company Bond Angle, as they tend to be issued by “extremely distressed companies and end up adding to an already massive debt load.”

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Two people familiar with WeWork’s deliberations said they expected the company to decide by the end of this week whether to accept the debt deal from JPMorgan, which was the lead underwriter on its failed initial public offering, or pursue an alternative proposal from SoftBank.

The Japanese group poured more than $10bn into the office company in successive financing rounds that raised its private market valuation to $47bn in January. It is now considering buying out other investors — and diluting the stake held by co-founder Adam Neumann — at a valuation below $10bn, one person familiar with the proposal said.

Should SoftBank effectively take the company in house, WeWork insiders expect it to insist on sweeping changes to its board and management.

WeWork had expected to raise $3bn to $4bn in new equity from an initial public offering, on which another $6bn in bank debt was dependent. But the company’s failure to convince public market investors to back it — even at a cut-price valuation of $15bn to $20bn — left a hole in its finances, following a period in which it ramped up spending on new properties in anticipation of the fresh funds.

The sudden reversal in WeWork’s fortunes has left Mr Neumann pushed back to a non-executive chairman’s role, with his shares’ voting rights severely curtailed.

On Tuesday he received the endorsement of Marc Benioff, however. The Salesforce chief executive told Business Insider that Mr Neumann was “probably one of the greatest entrepreneurs I’ve ever met. He’s an incredible evangelist. He’s an incredible visionary.”

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