SoftBank Gave $1.5B To Goldman, Other Lenders Days Before WeWork Went Bankrupt
WeWork's principal backer, SoftBank, was required to wire $1.5B to Goldman Sachs and other lenders a week before the coworking company’s Monday night bankruptcy filing, the Financial Times reported.
The payment, made Oct. 31, was part of a letter of credit co-signed by Goldman and brings the grand total SoftBank invested in WeWork to over $16B.
The letter of credit originated in December 2019, in the wake of WeWork’s failed initial public offering, which revealed the company’s $47B in lease liabilities, roughly equal to its valuation at the time. The company was found to be in a hole of debt, and co-founder and CEO Adam Neumann was ousted.
With the IPO left in the dust, landlords demanded evidence they would be paid. WeWork needed a lifeline.
Enter SoftBank, which helped WeWork obtain the $1.75B letter of credit to ease the wariness of risk management committees and other investors. At the time, SoftBank believed the deal was the best way to see its $9B investment pay off.
In a letter of credit, banks guarantee that a payment will be made in the future to a third party, even if the company can't give the same assurance. With the letter of credit and an extra investment of $3.75B from SoftBank, bankruptcy fears were set aside for a while.
Despite pandemic losses, WeWork went public via a special-purpose acquisition company in October 2021. At the time, the company had a $9B valuation after receiving a $1.5B investment from SoftBank and other investments from Cushman & Wakefield and Starwood, as well as merging with the blank check company.
The Federal Reserve’s steady interest rate increases made WeWork’s debt hard to manage. To reduce WeWork's outlays on interest, SoftBank forgave some of WeWork's debt in exchange for new shares and funded a $300M loan in exchange for a portion of debt repayment. This, coupled with cutting lease liabilities, was in hopes the company could enter stable ground, but that didn't work out. The $390M in shares were likely wiped out in bankruptcy.
SoftBank's losses of debt and equity are up to $14B and counting, according to The Wall Street Journal. SoftBank's earnings call later this week is expected to detail the losses, the FT reported.
