Wework downgraded by Fitch after IPO troubles leave hole in finances
Global ratings agency Fitch has downgraded WeWork’s credit rating two notches to “CCC+”, pushing the office space giant into junk territory following the official withdrawing of its initial public offering (IPO) filing.
Wework had hoped to raise at least $3bn (£2.4bn) from the floatation as well as borrowing a further $6bn in a loan contingent on the listing, but its IPO proposal received a frosty reception from investors, and chief executive Adam Neumann stood down last week.
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“In the absence of an IPO and associated senior secured debt raise, WeWork does not have sufficient funding to meet its growth plan,” Fitch said in a ratings note.
The ratings agency said it expected Wework to “curtail opening new locations and reconsider its aggressive shift into tertiary cities and farther flung locales” in response, and warned of the potential for Wework to be harmed by customers being hesitant to sign contracts.
Fitch also said Wework’s rating outlook was negative, and ii “anticipates that WeWork will dramatically scale back its growth ambitions and associated overhead expense that led to its precarious liquidity position.”
Fellow ratings agency Standard & Poor’s downgraded Wework from a “B” to a “B-” last week. Both “CCC+” and “B-” are junk bond ratings, for corporate borrowers judged to represent a higher risk to lenders.
Wework is in discussions with banks and Japanese technology group Softbank – the company’s largest investor – over potential alternative funding solutions, according to Reuters reports.
Fitch said it could revisit the rating if Wework was “able to negotiate a firmly committed financing plan and demonstrate successful implementation of any turnaround plan”.
The company had less than $2.5bn in unrestricted cash at the end of June, Fitch said, and was due $1.7bn from Softbank in 2020. The ratings agency estimates this would be enough to provide four to eight quarters of funding for Wework.
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This calculation does not include the costs of the restructuring proposed by new co-chief executives Artie Minson and Sebastian Gunningham, who want to return to Wework’s core business of co-working space rentals, moving away from fringe activities such as education introduced by Neumann.
Wework did not immediately respond to a request for comment.
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