WeWork Says 'Majority' Of Rightsizing Is Done, Sets May Target To Exit Bankruptcy

Coworking giant WeWork has determined its path forward on 90% of its approximately 500 global locations and is working to emerge from Chapter 11 bankruptcy in the U.S. and Canada by the end of May, it said in a release Tuesday.

The company said it reached agreements with landlords to amend 150 leases, although some of the contracts have yet to be executed, and it will maintain its leases at another 150 locations without changes to lease terms. Another roughly 150 locations will be shuttered through lease rejections or exits negotiated with its landlords. 

The future of around 10% of WeWork’s global portfolio, or around 59 locations, remains in flux. But Peter Greenspan, the firm’s global head of real estate, told Bloomberg Tuesday that WeWork staff was “spending a lot of time with landlords … trying to find ways for us to maintain our presence in the buildings.”

The closures and changes to lease terms it's already negotiated will save WeWork more than $8B in future rent commitments, or more than 40% of its total rent costs, the firm said in the release.

Daniel Gielchinksy, a bankruptcy attorney who isn’t involved in the case but has been closely following the restructuring, said WeWork’s announcement Tuesday was “priming the pump” ahead of the next hearing on April 18 and was “designed to put pressure on landlords.”

“I do think WeWork wants to hold on to those leases and sees value in them, otherwise they would have rejected them,” he said. “I think that this press announcement was designed to bring pressure on the holdout landlords to complete the negotiation process.”

WeWork separately reached an agreement with holders of 92% of its secured debt notes that would eliminate over $3B in debt obligations that existed prior to the coworking firm’s Chapter 11 bankruptcy filing in November. 

“We remain committed to emerging from our global real estate and financial restructuring later this quarter, and expect to do so with little to no debt and as a continuing leader in our industry, operating over 20 million square feet of real estate in over 20 countries around the world,” WeWork CEO David Tolley said in a statement. 

A WeWork spokesperson declined to make an executive available for an interview but said it would make decisions on the remaining locations in the coming weeks. 

The details WeWork announced Tuesday are largely in line with a 113-page restructuring plan filed in November with the Securities and Exchange Commission. That filing indicated the firm could exit 163 out of 509 locations globally, excluding joint ventures in Latin America and Japan. 

The plan said WeWork would keep 172 North American locations and 174 in the rest of the world, with annual rent costs at $1B for fiscal year 2024, not far off the 300 total leases the firm committed to keeping Tuesday.  

WeWork’s November restructuring plan also forecast the conversion of about $3B in debt to equity, a figure highlighted in the Tuesday announcement. The November filing indicated its senior debtholders would become the owners of the business, and the WeWork spokesperson said that it was continuing to execute that plan.

WeWork’s timeline leaves less than 60 days for it to execute its plan and emerge from bankruptcy, a window that lawyers said is achievable but tight. 

“They'll schedule an expedited confirmation procedure, which normally under the rules takes a minimum of 65 days, and they'll try to shrink that in half,” said Jonathan Pasternak, a bankruptcy attorney at New York-based Davidoff Hutcher & Citron who isn't involved in the case. “There is goodwill eroding every day that they don't emerge, and they will use that as cause to shorten the time period.” 

The creditors WeWork has reached an agreement with include SoftBank, the Japanese conglomerate that was its largest lender and investor prior to the bankruptcy, and a group of creditors that hold around 87% of the firm’s Series I first- and second-lien notes, the spokesperson said. It has also reached an agreement with Cupar Grimmond, an entity with no public presence controlled by Badri Krishnamachari that had around 35 million shares in the company. 

“Having the secured creditors in their pocket almost ensures a successful reorganization in terms of getting the necessary approval” from the bankruptcy judge overseeing the case, Pasternak said.

Those secured creditors will effectively become WeWork’s new owners, and the firm’s stock is likely to once again become publicly traded once it emerges from bankruptcy, lawyers said. 

The structure and terms attached to those new shares hasn't been disclosed, but Gielchinksy said there would likely be a freeze on the sale of new shares that could last as long as six months. 

“I don't imagine that SoftBank and the other big lenders who are converting into equity want to just dump their shares in the public marketplace a day after the successful reorganization,” he said. “They're hoping that the company increases in value and that they made a smart long-term bet.”  

Wayne Greenwald, senior counsel at Jacobs PC focused on bankruptcy, said some of WeWork’s unsecured creditors, including its biggest landlords, are also likely to end up holding shares in a post-bankruptcy WeWork. 

He described landlords as involuntary investors in the company with their investment collateralized by their leases. If WeWork wants to use their spaces, “they got to make them happy,” he said. “The only way they can make them happy is by giving them a portion of the upside.”

The announcement Tuesday isn't reflected in the mountain of legal filings in WeWork's bankruptcy case. As of Monday, court filings indicated WeWork had assumed 25 leases and rejected 94 in the U.S. and Canada, accounting for just 41% of its 292 locations in the region. 

WeWork will file a go-forward business plan in the coming days for the court and creditors' review, the spokesperson said. Approval of that plan would signal the firm’s emergence from Chapter 11 bankruptcy. 

“I have every faith and belief that they intend to make the appropriate motions in bankruptcy court, but I was a little surprised that there was nothing in the court docket even signaling that conclusion was going to be reached in the next 60 days,” Gielchinksy said.

The coworking firm also filed February financial statements over the weekend with the U.S. Bankruptcy Court for the District of New Jersey that showed it lost $122M that month, narrowing from a January loss of $153.7M. The company’s cash on hand dwindled to $89.6M from $113.3M a month earlier. 

WeWork’s announcement that it expects to exit bankruptcy before June follows a request early last month for a 120-day extension to maintain control of its Chapter 11 case and prevent other firms from filing competing restructuring proposals. 

The request came weeks before Adam Neumann, WeWork’s former CEO who was ousted after a failed initial public offering revealed financial mismanagement at the firm, went public with a $500M, venture-backed takeover bid for the firm.

Attorneys for Flow, Neumann’s apartment-focused startup, filed motions with the court on March 26 to attempt to elbow their way into court proceedings after WeWork reportedly rebuffed or ignored the buyout offer. 

Recent filings also suggest that WeWork is playing hardball with landlords that are holding out on renegotiated lease terms by withholding rent payments despite bankruptcy rules that compel the firm to be current on all of its rent due after filing for Chapter 11 bankruptcy. 

“Putting it into the news that WeWork is looking towards its exit within 60 days sends a message to the landlords that this is the final round of negotiations, so take it or leave it,” Gielchinksy said. “The landlords who are holding out need to make a tough decision: Can they fill their space at a market rent that's comparable to what WeWork is not paying them?” 

A WeWork spokesperson said Monday that the firm was leveraging every tool at its disposal to secure agreeable lease terms. Court records for leases that have been recently renegotiated signal that WeWork has been agreeing to pay post-bankruptcy back rent as part of their agreements to stay at a property.

"We want to build the future of WeWork with our landlords as partners and since we embarked on this process, our goal has been to find a positive future in as many of our buildings as possible,” Greenspan said in a statement Tuesday.

“While there is still more work to be done, and some hard decisions remain, the majority of this project is now behind us,” he said.

UPDATE, APRIL 2, 6:50 P.M. ET: This story has been updated to include interviews with independent bankruptcy attorneys and additional details from WeWork's spokesperson.