It’s crunch time for WeWork as bankers led by JPMorgan Chase & Co. plan to tell the board of the embattled lease-spacing company as early as Friday whether they have cobbled together enough investors to provide a $5 billion loan that will help the imploding lease-spacing company side-step a cash crunch and avoid potential bankruptcy, FOX Business has learned.
JPMorgan has been meeting with between 60 and 100 possible investors for the bank loan, according to people with direct knowledge of the matter. Technology conglomerate SoftBank Group Corp., already WeWork’s largest investor, could also add more equity under the JP Morgan financing, these people add.
One major financial player that won’t likely be part of the financing is Goldman Sachs Group, Inc., which along with JPMorgan attempted to bring WeWork public in an ill-fated initial public offering last month that was plagued not only by weak financials, but by tales of lax corporate governance and overspending by former CEO Adam Neumann.
Goldman participated in a previous debt financing, but barring a last-minute change, Goldman is signaling to JP Morgan it will not be part of the lending group. The big investment bank announced it took an $80 million write-down following the IPO disaster, disclosing the information during its earnings call this week.
A Goldman spokeswoman had no comment.
As of press time Thursday evening, it could not be determined if JPMorgan had come up with the necessary money for the massive bank loan. The big bank may wait until the weekend to make its presentation to WeWork’s board if it believes the additional time will help raise it to raise the necessary funds for the $5 billion loan, and as it sets a coupon-rate for the debt of between 9 percent and 15 percent, the people add. A JP Morgan spokesman declined comment.
The JPMorgan deal is said to be the one preferred by WeWork management and many investors because it would leave current management in place, and put the company on the road toward selling off non-core assets, while focusing on its main office leasing business and eventually returning to Wall Street with an IPO that would allow those investors to monetize their holdings.
Some market watchers are optimistic JPMorgan will come through. “I would suspect that JPM has a lot of high net worth people in their investment,” Greg Kraut of K Property Group tells FOX Business. “I would bet Jamie Dimon wouldn’t let them go bankrupt and give them very favorable financing terms.”
But if JPMorgan isn’t successful, WeWork doesn’t have many options other than to accept a financing plan by its largest investor, Masayoshi Son’s SoftBank, in which the Japanese technology conglomerate would take a controlling stake in the company, these people say.
And a Softbank investment may be of strategic importance as well. “What kind of signal does it give to the market if the largest investor won’t support it anymore?” Harvard Business School Senior Lecturer Nori Gerardo Lietz tells FOX Business. “That condition is precedent to anyone else writing an equity check.”
Softbank would prefer a long-term approach to rebuilding WeWork in a way that would delay any IPO for years and enable them to recoup their prior investment though it’s extremely unlikely WeWork will ever return to the $47 billion valuation it was given by Softbank less than a year ago.
Today, WeWork’s estimated value is $10 billion or less. Another option for WeWork is to simply sell off its various parts, including the core leasing business, which some investors prefer because they believe the company’s future is dim, these people say. Despite reports of a possible billion-plus lifeline, WeWork bonds continue to trade at depressed levels—just 79 cents on the dollar—signaling many investors believe the company could slip into bankruptcy restructuring.
A WeWork spokeswoman had no comment.
WeWork was forced to pull its IPO—despite bankers at Goldman pitching valuations as high as $90 billion—after investors began studying its high debt levels, massive losses and that it burned through mountains of cash in its government-mandated IPO document, known as a deal prospectus. Investors balked at the stock sale because they believed these issues were glossed over by the company’s marketing pitches and by Neumann through years of savvy promotion. Many investors were worried that the company faced still undisclosed problems.
Softbank’s investments in the company that began in 2017 also provided a boost of confidence that papered over these issues and Neumann’s own questionable actions including cashing out roughly $700 million in his WeWork stock before the IPO.
Following the botched IPO, Neumann stepped down as CEO to take on the role of non-executive chairman. He was replaced by co-CEOs Artie Minson and Sebastian Gunningham as JP Morgan began an intensive review of the company’s business operation, and whether these operations were sound enough that investors would put money into the outfit as part of a broader restructuring.
People close to Neumann say neither he nor the company is a subject of a regulatory probe over the collapse of the IPO and the company’s financial disclosures. A spokeswoman for Neumann said the former CEO wants “What’s best for the company,” but declined further comment.
People at JPMorgan are said to believe that WeWork’s core business of office leasing is one that has a future, even if it’s still unclear if other banks share its enthusiasm. JPMorgan had been a regular lender to the company over the years, and its CEO Jamie Dimon developed a close relationship with Neumann.
WeWork was launched in 2010 by Neumann who used splashy marketing campaigns and glib progressive sales pitches to elevate WeWork stature as something more than a company that leases office space to entrepreneurs and other businesses. Its clients were known as “members” and Neumann said the experience of working out of a WeWork space would “elevate the world’s consciousness” by providing people with community-minded atmosphere in its offices.
WeWork soon became what’s known on Wall Street as a “unicorn,” or a startup that is valued at more than $1 billion and is considered to have unlimited potential. During WeWork’s ascendency, Neumann attracted a high-caliber following. Salesforce CEO Marc Benioff called him a “great entrepreneur.” Neumann developed friendships with his main banker, Dimon and even celebrity investor Ashton Kutcher, who appeared with the former CEO in January on the business network CNBC to tout the WeWork success story.
But the company also attracted its share of skeptics, even if they weren’t among the big Wall Street firms looking to make money underwriting its looming IPO. In the pre-IPO market, WeWork shares traded at deep discounts because of a lack of buyers willing to pay for shares that would match the much-touted $47 billion valuation that SoftBank attached to the company, according to people with direct knowledge of the matter.
Earlier in the year, Softbank raised eyebrows by investing just $2 billion into WeWork when analysts believed the investment would be higher. Some WeWork watchers believed the tech conglomerate was getting nervous about the company’s prospect. A Softbank spokesman didn’t return a call for comment.
And while a number of options are still on the table, WeWork doesn’t have much time. “Something will either happen or it won’t… but it’ll happen quickly,” Lietz adds.