WeWork Seeks Fresh Financing Amid Rent Negotiation Challenges

WeWork is looking for new financing or a new bankruptcy loan to make up for its slacking progress on rent negotiations, an attorney for the Softbank-backed company told Bloomberg. In an email to the publication, the shared office space provider said the new financing would strengthen their ongoing operations during the bankruptcy process. WeWork's post-bankruptcy business plan hinges on a significant reduction in future rent costs from its landlords. However, in the bankruptcy proceedings, major landlords resisted the company’s request for debtor-in-possession expressing concerns about exposure they would face if the restructuring collapsed.

The company has not disclosed where it is looking to source the financing or how much it will need to successfully come out of the bankruptcy process.

As per the report, the beleaguered company needs to pay rent on office spaces used by its customers. The company is in the process of filtering properties that it would keep and the properties it would shed across the globe as a part of its Chapter 11 reorganization.

The Softbank-backed company filed for bankruptcy protection in Newark, New Jersey, bankruptcy in November, last year seeking to address more than $4 billion in debt and unsustainable future rent costs.

WeWork’s Bankruptcy Troubles

Once valued at $47 billion, WeWork filed for bankruptcy as it racked up losses on its long-term lease obligations during the pandemic when more people began working from home and demand for office space plunged.

At the time of filing for bankruptcy, WeWork believed it could make it through using the $164 million of cash it had on hand. However, the company now believes that amount is insufficient and is considering taking out a new bankruptcy loan, WeWork attorney Steven Serajeddini said according to a Reuters report.

Under its bankruptcy plan, the senior lenders including the holders of WeWork’s credit line, first-lien notes, and second-lien notes will own the company after it emerges from bankruptcy.

Progress With Rent Negotiations

WeWork has been grinding away getting some success with renegotiating leases with landlords that are willing to keep working with the company. WeWork successfully renegotiated with landlords to keep several locations open. The company further cut 80 leases as well.

However, over a dozen landlords are holding out against WeWork, claiming that it is violating the U.S. bankruptcy rules by failing to pay rent. When the firm filded for Chapter 11 it owed landlords at least $98.6 million in unpaid rent. 

WeWork said that the landlords are demanding above-market rent and holding the firm on the hook for back rent and penalties. The holdouts have decried the company's "hardball tactics", saying the bankruptcy law requires companies to keep paying rent for properties that they continue to use. They have asked the federal bankruptcy Judge John Sherwood overseeing the bankruptcy to force the company to pay rent they claim it is withholding.

In the Reuters report, landlord attorney Ivan Gold said that the company is free to reject leases, but it cannot have it both by continuing to occupy property and not paying rent.

WeWork’s Response

WeWork has so far denied the allegations, arguing that the landlords can get paid using other means, like letters of credit instead of draining the funds from its shrinking pool of money.

WeWork in its filing said that most of the unpaid landlords have access to letters of credit and surety bonds which are set up to make sure that they are paid.

Last year, WeWork requested its landlords to make concessions on their leases during its first appearance in U.S. bankruptcy court. At the time it had managed to renegotiate 590 leases before filing for bankruptcy, saving about $12.7 billion in future rent payments, according to a Reuters report.

However, the company still has more work to do to get rent costs under control, WeWork attorney Serajeddini said at Wednesday's court hearing. WeWork vowed to cut the number of properties it rents and reorganize its other debt in a bid to survive, at the time of filing for bankruptcy.

Now, Judge Sherwood will consider the legality of WeWork's January rent withholding on February 20, when he will hear three landlords' demands for payment of over $4 million in withheld rent.