WeWork plans to file for bankruptcy as early as next week, a source familiar with the matter said Tuesday, as the company struggles with a huge pile of debt and steep losses.
Rumors of the company filing for bankruptcy have dogged them for some time, after they told regulators there were “significant doubts” about its ability to remain in business next year.
Shares of the flexible workspace provider fell 32 percent in extended trading after The Wall Street Journal first reported the news. They have fallen by around 96 percent this year.
New York-based WeWork is considering filing a Chapter 11 petition in New Jersey, the WSJ reported, citing people familiar with the matter. WeWork declined to comment.
Earlier on Tuesday, WeWork said it had reached an agreement with creditors to temporarily defer payments on a portion of its debts as its payment deadline nears the end.
WeWork plans to file for bankruptcy as early as next week, a source familiar with the matter said Tuesday, as the company struggles with a huge pile of debt and steep losses
The company had $2.9 billion in net long-term debt and $13 billion in long-term leases at the end of June, at a time when rising borrowing costs are weighing on the commercial real estate sector.
WeWork’s bankruptcy filing would mark a stunning turnaround for the company, which was privately valued at $47 billion in 2019, and a black mark for investor SoftBank, which has lost billions.
The company has been in turmoil since its plans for an initial public offering collapsed in 2019 because investors were skeptical of its business model of taking long-term leases and renting them out short-term and worried about steep losses.
WeWork’s problems didn’t subside in the years that followed. In 2021, we finally managed to go public with a significantly reduced valuation. Its main backer, Japanese conglomerate SoftBank, has spent tens of billions to fund the startup, but the company has continued to lose money.
WeWork expressed “significant doubt” in August about its ability to continue operations as numerous top executives, including CEO Sandeep Mathrani, depart this year.
Rumors of the company filing for bankruptcy have dogged them for some time, after they told regulators there were “significant doubts” about its ability to remain in business next year
When did WeWork’s problems start?
The problems began for the New York-based company, founded in 2010, when it sought to go public in 2019.
In August of that year, the company, which rents co-working spaces to freelancers, startups and established companies, released its full financials and reported a loss of $900 million in six months.
The IPO failed after investors raised concerns about the company’s business model and leadership under founder and then-CEO Adam Neumann – and the company suffered a spectacular collapse, with its valuation plummeting to less than $10 billion.
Neumann fell out of favor and was eventually ousted amid allegations of a toxic environment at WeWork.
Despite the company’s utopian image, employees later described it as a “cult-like” environment and referred to Neumann as a “partyer in chief” while describing his “tequila-fueled management style,” which included smoking marijuana on private jets.
In an alleged incident of excess, Neumann hosted a three-day party for 8,000 employees to celebrate the company’s $37 billion value.
In his book Billion Dollar Loser: The Epic Rise and Fall of WeWork, Reeves Wiedeman wrote that Neumann demanded that there be cases of Don Julio 1942 tequila in every office and that he would “lose his ass” if they weren’t there.
Although poor wages at WeWork angered employees, Neumann bragged about how little he paid his employees and insisted they pay their bills with “determination” and free beer, the book says.
In 2020, it was reported that the company paid a whistleblower more than $2 million in cash to keep her quiet after she threatened to expose an alleged culture of drug use, sleeping with colleagues and discrimination at the company , and claimed that she was the victim of a sexual assault.
The company eventually went public in October 2021 through a merger with a special purpose acquisition company, but the turmoil continued.
WeWork has been hit hard by the Covid-19 pandemic as social distancing led to people increasingly working from home, and the company still hasn’t reported a profit since restrictions were eased.
Founder Adam Neumann was forced to step down as CEO after a failed IPO in 2019
The New York-based workspace sharing company rents co-working spaces to freelancers, startups and established companies
What happened to WeWork in 2023?
The company told regulators on Aug. 8 that macroeconomic conditions had further weakened demand for its shared office space and it had suffered from a high turnover rate among its members.
WeWork’s interim CEO, David Tolley, took over in May 2023
WeWork has 512,000 members across its workspaces in 33 countries – and there are currently 32 co-working locations in the US, according to the company’s website.
However, according to real estate services firm JLL, U.S. office vacancies topped 20 percent earlier this year.
Researchers at Columbia University also found a 45 percent decline in office values in 2020, with little recovery predicted in the coming years.
In May, CEO Sandeep Mathrani resigned and board member David Tolley took over as interim CEO.
Three board members resigned in the first week of August because of “significant disagreements regarding board leadership and the strategic and tactical direction of the company.”
The company entered into agreements in March to reduce its debt by about $1.5 billion and extend the maturity dates of some maturities to conserve cash.
Tolley noted some positive aspects of the business Aug. 9, pointing to revenue growth, but also listed the headwinds the company has faced — including an oversupply of office space and increasing competition from other co-working firms.
To remain profitable, WeWork said the company must reduce the cost of its leases and seek “additional capital through the issuance of debt or equity securities or the sale of assets.”