WeWork's bankers are scrambling to complete a new debt financing package as soon as next week to buy time to restructure after the company's failed initial public offering left it running short of cash at a faster rate than expected.
Two people briefed on the fundraising efforts said the office company's cash crunch was so acute that it had to raise new financing no later than the end of November. Fitch Ratings downgraded WeWork's credit rating last week to CCC+, warning that the lossmaking company's liquidity position was "precarious".
JPMorgan Chase, the Wall Street bank that had led the office company's IPO preparations, is leading the financing negotiations and considering a contribution to the new package, several people familiar with the matter said.
The debt will come at a considerably higher cost to WeWork than it paid for its previous loans, reflecting the abrupt change of fortunes for what was until a few weeks ago one of the world's most highly valued private companies.
SoftBank, Masayoshi Son's Japanese telecoms and technology group, had previously agreed to inject $1.5bn into WeWork next April and a further $200m in the second half of next year.
It is now considering amending that agreement to put in the money it had committed at a sharply reduced valuation from the $47bn price tag it placed on WeWork when it last invested in January.
It is also in talks to add new funding that could raise its part of the fundraising package to about $2.5bn and bring its total investment in WeWork to about $11.5bn, people familiar with the discussions said.
They cautioned, however, that negotiations were still fluid and that the talks about new SoftBank funding and other elements of the debt package could still fall apart.
JPMorgan is trying to get other major banks to participate, said people familiar with its efforts to put together the emergency financing package.
Goldman Sachs, one of WeWork's investors, advisers and customers, had been among a consortium of banks willing to lend $6bn had the IPO succeeded but has so far sat out the new financing discussions out of concern about the level of uncertainty surrounding the company, one person said.
WeWork, SoftBank, JPMorgan and Goldman Sachs declined to comment.
WeWork has been burning through the cash it raised in the private market. The failure of the IPO deprived it of $3bn-$4bn it hoped to raise from issuing new equity and the $6bn loan package its bankers had offered subject to it completing a successful float.
Institutional investors rejected both the valuation WeWork sought, making clear that no IPO would price it above a $15bn-$20bn range, and the company's labyrinthine governance arrangements.
Since WeWork pulled the IPO, Adam Neumann, the co-founder who had taken about $700m out of the company before trying to bring it to market, has agreed to cede his position as chief executive and to strip his shares of some of their voting power.
Fitch estimates WeWork's current funding arrangements might only carry it through another four to eight quarters unless it rapidly reduced the rate at which it has been burning cash.
WeWork's bonds have tumbled since signs emerged that its IPO was in trouble, and were trading below 82 cents on the dollar on Thursday. The yield on the bonds has leapt from 6.8 per cent to 12.5 per cent since August.
WeWork's losses have climbed as fast as its revenues: it lost about $1.9bn in 2018 on sales of $1.8bn. Fitch estimated the company had less than $1.5bn in unrestricted cash at the end of the third quarter, and warned that it faced "material restructuring cash charges" as it lays off several thousand of its 12,500 employees.
Co-CEOs Artie Minson and Sebastian Gunningham have pushed some of Mr Neumann's acolytes out of the company and reined in its signing of new leases.
In an interview this week with Nikkei Business magazine, Mr Son did not address WeWork directly but said he was "embarrassed" by his failings. The biggest of them, he said, was when he attempted to compete against NTT in broadband and watched SoftBank's valuation plunge as the dotcom bubble burst.
"Compared with those days, the small crises that pop up here and there today are mere child's play," he said.
Written by: James Fontanella-Khan and Andrew Edgecliffe-Johnson in New York
© Financial Times