WeWork to Raise Billions Selling Debt Ahead of IPO
Workspace company is raising cash that could help it dodge issues that plagued Lyft and Uber debuts
WeWork Cos. has a plan to shore up confidence in its business before it goes public: offer billions of dollars in debt that would fund its growth until it can turn a profit.
The money-losing office-space manager is seeking to raise as much as $3 billion to $4 billion in coming months through a debt facility that could grow as big as $10 billion over the next several years, the people said. This debt offering would be independent of the money WeWork raises in its initial public offering and could even raise more money for the company than the IPO itself.
The huge capital raise even before the IPO reflects the skepticism surrounding well-known companies like Lyft Inc. and Uber Technologies Inc. that have racked up steep losses and gone public with much fanfare but without much trading success. Both Lyft’s and Uber’s stock prices are below where they went public—and even further below lofty pre-IPO expectations of how high they could trade.
WeWork, which lost $1.9 billion last year, has been dogged by comparisons to Uber and Lyft and haunted by a huge planned investment from SoftBank Group Corp. that fell apart after some key investors balked at the plan. The cash from this debt facility could help shore up demand for the IPO, people familiar with the planned deal said, in part by showing the company will be able to fund growth for years without having to turn again to equity markets.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are structuring and backing the deal, potentially along with other banks, the people said. WeWork Chief Executive Adam Neumann met in recent weeks with the banks’ CEOs, Jamie Dimon and David Solomon, to discuss this deal and the company’s IPO, people familiar with these discussions said.
WeWork’s primary business is to rent long-term spaces, renovate them, then divide the offices and sublease them on a short-term basis to other firms. The company owns few properties itself. Through this debt offering, WeWork would use the cash flows it generates from individual buildings to fund the interest payments on the debt, the people said.
WeWork, which has been in talks about the potential debt deal for more than a month, is looking to put the facility in place before it moves forward with its IPO later this year or early next, these people said. The transaction could be finalized in the next several weeks, though people familiar with the deal cautioned that it could still fall apart or could shift and take another form.
Raising as much as $4 billion in the debt markets is a rarity for a company with WeWork’s financial profile. People familiar with the deal said that while fast-growing companies like Uber, Spotify Technology SA and WeWork have tapped the debt markets in recent years—a historically unusual move for money-losing companies—raising debt at this size through cash flows is a rare, if not unprecedented, move.
Tesla Inc., which has yet to generate consistent profits, has used lease payments on some vehicles as collateral to sell more than $1 billion in bonds. As is generally the case with auto-lease bonds, the debt was issued by a special entity aimed at protecting investors in the event of a Tesla bankruptcy.
By raising billions in new debt, WeWork would have less of a need to raise money from potential public stockholders. The IPO still would likely raise several billion dollars, these people said.
Because investors in WeWork’s potential new debt facility would get access to cash flow from WeWork’s buildings in the U.S., Europe and Latin America to fund debt payments, the company could raise money at a lower interest rate than it could get in the corporate bond market, where its bonds trade at a high risk premium over safe government debt. WeWork last year raised a significantly smaller chunk of debt—$702 million—at a high interest rate of 7.9%, and the bonds were assigned ratings in junk territory.
The debt deal is designed to help WeWork showcase the value of its leases and the cash flows from them, some of the people said. It is also expected to show that profitability is something within the company’s control, these people said, because many of its individual properties are profitable and much of its loss-making comes from growth efforts.
WeWork has posted rapid revenue growth, but its losses have been ballooning at a similar clip. The nine-year-old New York company’s $1.9 billion loss last year outstripped the $1.8 billion of revenue it generated. Its huge losses mean it has a ravenous appetite for cash.
There have been questions about whether WeWork, which rebranded itself earlier this year as the We Company, could garner a valuation anywhere near its last private round of funding. It was last valued at $47 billion when it raised capital from SoftBank earlier this year. However, at that time, SoftBank also bought shares from WeWork employees and investors at a valuation of around $23 billion, giving the company a blended valuation of around $36 billion.
Some investors have said it is likely to be valued lower than its $47 billion valuation in its IPO, but this debt deal could help boost its public valuation.
Late last year, ahead of Uber’s and Lyft’s offerings, WeWork had been discussing a potential deal with SoftBank that could have made an IPO unnecessary for years. SoftBank was considering investing as much as $16 billion into the real-estate company—$6 billion of new money and $10 billion to buy shares from existing investors. But the deal crumbled after some of SoftBank’s investors balked over concerns including WeWork’s high valuation, and the firm instead invested $1 billion directly in WeWork and bought another $1 billion of existing shares.
WeWork, which confidentially filed for an IPO late last year, has aspirations to be more than a real-estate company. Mr. Neumann and his deputies have said investors should treat WeWork more like a tech company, pointing to its rapid growth and various services it eventually hopes to offer that cater to its tenants.