November 6, 2023 – WeWork Inc. and @500 affiliated debtors* (NYSE: WE; “WeWork” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of New Jersey, lead case number 23-19865 (Judge John K. Sherwood). The Debtors, the "leading global flexible space provider," are represented by Michael D. Sirota of Cole Schotz P.C. Further board-authorized engagements include: (i) Kirkland & Ellis LLP and Kirkland & Ellis International LLP as general bankruptcy counsel, (ii) Province, LLC as financial advisor, (iii) Alvarez & Marsal North America, LLC as restructuring advisor, (iv) PJT Partners LP as investment banker, (v) Hilco Real Estate to assist with lease renegotiations and (vi) Epiq Corporate Restructuring, LLC as claims agent.
*List of Debtors (as well as close to 300 non-Debtor entities) begins on page 40 of Docket No. 21.
The Debtors’ lead petition notes more than 100,000 creditors; estimated assets between $10.0bn and $50.0bn; and estimated liabilities between $10.0bn and $50.0bn ($4.2bn of funded debt; the Debtors' most recent 10-Q notes $15.063 billion in total assets and $18.656bn in total debts as of June 30, 2023). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) U.S. Bank Trust Company, National Association ($170.7mn senior notes claim and a $9.5mn senior notes claim), (ii) The Alter Group ($11.9mn lease related claim) and (iii) Westfield Fulton Center LLC ($8.2mn rent claim).
In a press release announcing the filing, WeWork advised that: “it has commenced a comprehensive reorganization to strengthen its capital structure and financial performance and best position the Company for future success. The Company maintains the strong support of its key financial stakeholders and has entered into a Restructuring Support Agreement ('RSA') with holders representing approximately 92% of its secured notes to drastically reduce the Company’s existing funded debt and expedite the restructuring process. During this period, WeWork will further rationalize its commercial office lease portfolio while focusing on business continuity and delivering best-in-class services to its members, as global operations are expected to continue as usual.
To successfully achieve its goals, WeWork Inc. and certain of its entities filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and intend to file recognition proceedings in Canada under Part IV of the Companies’ Creditors Arrangement Act (the 'CCAA Recognition Proceedings'). WeWork’s locations outside of the U.S. and Canada are not part of this process. WeWork’s franchisees around the world are similarly not affected by these proceedings.
WeWork has a deliberate and value maximizing lease rejection plan that is expected to position the company for operational and financial success. As part of today's filing, WeWork is requesting the ability to reject the leases of certain locations, which are largely non-operational and all affected members have received advanced notice….
The Company will continue servicing its existing members, vendors, partners and other stakeholders in the ordinary course of business. WeWork expects to have the financial liquidity to execute these proceedings and continue business in the ordinary course."
David Tolley, CEO of WeWork, commented: “Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet. We defined a new category of working, and these steps will enable us to remain the global leader in flexible work. I am deeply grateful for the support of our financial stakeholders as we work together to strengthen our capital structure and expedite this process through the Restructuring Support Agreement."
Golas of the Chapter 11 Filings
"The Debtors commenced these chapter 11 cases to rationalize their lease portfolio, right-size their balance sheet, and position WeWork for sustainable, long-term growth."
Restructuring Support Agreement (the "RSA," attached at Exhibit B to Docket No. 21) and Plan Outline
The Tolley Decaration (defined below, see also our "Events…" section for build-up to RSA) provides: "…the Company, SoftBank, the Ad Hoc Group (representing approximately 87 percent of the Company’s Series I 1L Notes and 2L Notes), and Cupar entered into a Restructuring Support Agreement ('RSA') that contemplates a path forward for these chapter 11 cases with the support of SoftBank and other holders of approximately 92 percent of the Company’s Secured Notes. The RSA is centered on the full equitization of the Company’s 1L Notes, 2L Notes, and the LC Facility and will reduce the Company’s funded debt by approximately $3 billion."
The RSA continues as to the anticipated parameters of a Plan of Reorganization: "Pursuant to the RSA, the Restructuring Transactions contemplates:
- the equitization of the Drawn DIP TLC Claims (other than up to $100 million of such Claims which shall be satisfied with loans under a New 1L Exit Term Loan Facility), Prepetition LC Facility Claims, the 1L Notes Claims, and the 2L Notes Claims into New Interests;
- the cancellation of all other indebtedness and preexisting equity Interests in the Reorganized Company, as further set forth herein (other than any equity
Interests held by the SoftBank Parties with respect to which, pursuant to the Plan and as agreed by the Parties, a SoftBank Party contributes its Claims in exchange for the retention of its equity interests; - issuance of a New 1L Exit Term Loan Facility for the lesser of (a) the total amount of all Drawn DIP TLC Claims and (b) $100 million, plus, in each case, the DIP TLC Fee Claims;
- a DIP TLC Facility that, among other things: (a) deems all outstanding, undrawn, letters of credit under the Prepetition LC Facility (other than undrawn letters of credit issued in connection with certain leases/locations to be identified and agreed upon by the Company Parties and the Consenting Stakeholders no later than the Petition Date) whether rolled, replaced, renewed, reissued, or amended (the 'DIP LCs') to be obligations under the DIP TLC Facility and all associated cash collateral posted for each letter of credit to continue as credit support under the DIP TLC Facility, in each case on a dollar-for-dollar basis; and (b) provides for the roll, replacement, renewal, reissuance, and/or amendment of the DIP LCs, which facility shall rank pari passu in lien and claim priority with the Prepetition LC Facility Claims and 1L Notes Claims (other than with respect to (1) amounts funded by the SoftBank Parties or their Affiliates to the Company Parties in the form of “Term Loan C” and (2) certain fees thereunder); and
- a binding commitment by certain SoftBank Parties to, subject to the following sentence [this sentence was omitted, but we copy in from RSA term sheet], provide credit support in the form of providing cash to be used as collateral for a New LC Facility. For the avoidance of doubt, credit support provided under
the New LC Facility, if any, shall not exceed the amount of undrawn and outstanding letters of credit under the DIP TLC Facility (and shall be reduced on a dollar-for-dollar basis based on drawn letters of credit that occur prior to the Plan Effective Date).
RSA Mlestones
The RSA provides for the following treatment of classes and claims:
Rejection of Leases
The Tolley Declaration provides as to the Debtors' intention to "aggressively address" its lease portfolio and the Debtors' prepetition lease rationalization effort: "The Debtors have also filed motions seeking authority to reject approximately over sixty unprofitable leases and the approval of procedures designed to streamline the process of additional lease rejections.
Since the successful de-SPAC transaction [at which point the Debtors' second shot at an IPO and NYSE listing succeeded], WeWork has continued to grow its business and execute on its strategic plan, benefiting from a cyclical recovery from the depths of the pandemic but also burdened by the need to adapt to permanent changes among companies and employees in work and work-from-home behaviors. Acknowledging the need to right-size its portfolio and cut lease costs in the face of these issues confronting the entire commercial real estate industry, the Company has successfully amended over 590 leases and implemented a series of measures to enhance operational efficiency, reducing future rent obligations by over $12 billion and selling, general, and administrative expenses by approximately $1.8 billion."
Armed with the threat/power of rejection, the Debtors are also continuing with an expansive lease renegotiation effort led by Hilco, with Tolley noting: "…the Debtors, with the assistance of their advisors, remain in active negotiations with their landlords with respect to the potential restructuring of existing lease terms. As of the Petition Date, Hilco is in active negotiations with over 400 landlords to consummate lease amendment agreements."
Events Leading to the Chapter 11 Filing
In a declaration in support of first day filings (the “Tolley Declaration) [Docket No. 21], David Tolley, the Debtors’ CEO commented: “WeWork’s corporate valuation came into doubt after the Company filed its Initial Registration Statement related to a proposed initial public offering ('IPO') on August 14, 2019. With heavy attention on WeWork’s negative earnings and questions raised about its governance, investors balked at the $47 billion private valuation and, less than two months after it was filed, the Initial Registration Statement was withdrawn.
The unsuccessful IPO had a number of repercussions. First, Neumann resigned as the chief executive officer and relinquished majority voting control. Second, the Company was left with a dire need for capital, and SoftBank stepped in, this time providing approximately $5 billion in new financing. Third, the Company formulated and began to execute on a strategic plan to transform its business. After almost a decade of building out one of the most expansive private commercial real estate portfolios in the world, including becoming the largest private office tenant in certain cities including New York and London, the Company recognized the need to pivot away from further high-growth initiatives to focus instead on operational efficiency and optimization and establishing a path to profitability. This meant cutting previously uncontrolled expenses, exiting businesses that were not part of the Company’s core offering, and optimizing a real estate portfolio that had come to contain many unprofitable locations due primarily to above-market rents.
Unfortunately, just as the Company’s lease rationalization process was progressing, the COVID-19 pandemic struck and wreaked havoc on the commercial real estate landscape, particularly in major cities where WeWork has a large footprint. As a company focused on providing office spaces intended for people to work together, the widespread work-from-home mandates necessitated by COVID-19 were extraordinarily disruptive to and inflicted significant damage on WeWork’s business and financial condition. Among other things, WeWork experienced a sharp reduction in new sales volumes at its locations and considerable customer churn largely due to the massive and, in many instances, permanent, shift of companies large and small to working from home."
Out-of-Court Efforts and Negotiation of the RSA
The Tolley Declaration provides the following on the evolution of restructuring efforts which ultimately resulted in the RSA and its in-court restructuring: "In August 2023, the Company engaged Hilco to assist with an accelerated and comprehensive lease rationalization on a global scale. Beginning in September of 2023, the Company and Hilco began engaging with hundreds of landlords to secure amendments or exits to substantially all of the Company’s real estate leases. Ultimately, however, the deliberate pace of that process together with the Company’s finite liquidity did not provide the Company with sufficient runway to complete an out-of-court rationalization of its lease portfolio, and the Company began to take steps to extend its liquidity while it negotiated a comprehensive restructuring transaction with parties in interest.
At the beginning of October 2023, the Company withheld (i) approximately $95.2 million of interest payments on its 1L Notes, 2L Notes, 2L Exchangeable Notes, 3L Notes, and 3L Exchangeable Notes, approximately $37.3 million of which was payable in cash and the remaining $57.9 million were payable in kind; and (ii) approximately $78 million of rent payments at certain locations across its lease portfolio, including approximately $37 million in the United States and approximately $41 million in international locations ((i) and (ii) collectively, the 'Payment Withholding'). Under the Notes Indentures, the Company had a thirty-day grace period to make the missed interest payments before the non-payment crystalized into an event of default. Contemporaneously with its decision regarding the Payment Withholding, the Company began negotiations with key stakeholders across its capital structure, including SoftBank, the Ad Hoc Group, and Cupar.
In the following weeks, the Company, with the assistance of their advisors, worked tirelessly to engage with their key stakeholders to chart a value-maximizing path forward in these chapter 11 cases. On October 30, 2023, the Company, SoftBank, the Ad Hoc Group, and Cupar entered into an agreement (the 'Forbearance Agreement') pursuant to which SoftBank, the Ad Hoc Group, and Cupar agreed to forbear from exercising remedies following the Payment Withholding until November 6, 2023. That same day, WeWork, SoftBank, Goldman, Kroll, and certain other Issuing Banks under the LC Facility executed that certain Satisfaction Letter and Forbearance Agreement (the 'Satisfaction Letter') pursuant to which (i) SoftBank agreed to repay approximately $179.5 million for the senior tranche of the LC Facility and approximately $542.6 million for the junior tranche of the LC Facility and posted $808.8 million of cash collateral for the undrawn amounts under the LC Facility; and (ii) Goldman, Kroll, and certain other Issuing Banks, constituting the requisite majority of Issuing Banks of the LC Facility, agreed to forbear the exercise of any rights or remedies against the Company with respect to the Company’s cross default on the LC Facility while SoftBank’s payment and cash collateralization was pending. On October 31, 2023, SoftBank paid the entire $1,466,955,937.39 in accordance with the Satisfaction Letter and became subrogated to the Issuing Banks’ and other secured parties’ rights under the LC Facility Credit Agreement. Seven days later, the Debtors, SoftBank, the Ad Hoc Group, and Cupar reached an agreement on the terms of a comprehensive restructuring transaction, embodied in the RSA…"
Prepetition Indebtedness
As of the Petition date, the Debtors had approximately $4.2bn in aggregate outstanding principal and accrued interest for funded debt obligations, as reflected below:
12 Amount is based on drawn amount funded by and undrawn amount cash collateralized by SoftBank pursuant to the Satisfaction Letter.
13 Includes approximately $31.5 million in fees incurred in connection with certain prepetition transactions with respect to the LC Facility.
Significant Shareholders
Entities affiliated with SB Global Advisors Limited (ie Softbank) hold in excess of 5% of the Debtors' common shares, according to the lead petition.
About the Debtors
According to the Debtors: “WeWork Inc. (NYSE: WE) was founded in 2010 with the vision to create environments where people and companies come together and do their best work. Since then, we’ve become the leading global flexible space provider committed to delivering technology-driven turnkey solutions, flexible spaces and community experiences."
Court filings add: "The Debtors, together with their non‑Debtor affiliates…are the global leader in flexible workspace, integrating community, member services, and technology. Founded in 2010 and headquartered in New York City, WeWork’s mission is to create a collaborative work environment where people and companies across a variety of industries, from freelancers to Fortune 100 companies, come together to optimize performance. WeWork is publicly traded on the New York Stock Exchange and employs over 2,650 full‑time and fifty part-time workers in the United States and abroad. The Company operates over 750 locations in thirty-seven countries and is among the top commercial real estate lessors in business hubs including New York City, London, Dublin, Boston, and Miami. For the fiscal year 2022, WeWork’s revenue was approximately $3.25 billion."
Corporate Structure
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