Clock ticking down on WeWork’s US$6bn loan after IPO delayed
By Michelle Sierra
NEW YORK, Sept 19 (LPC) - WeWork has to complete a troubled US$3bn initial public offering (IPO) before the end of the year to maintain access to a crucial US$6bn loan, after delaying the filing this week amid mounting concerns about the company’s valuation.
The US$6bn loan is contingent on the equity issuance and WeWork has until December 31 to go public before losing access to the credit, which is key to the company’s expansion, sources said.
“The original expectation was September or October to launch the IPO,” a banking source said. "If they don't do it during that window the (loan) commitment will expire.”
The US office-sharing startup made a last minute decision this week to postpone an investor roadshow for its IPO that was anticipated to launch as early as September 16. The IPO was expected to value the company at US$10-12bn, a dramatic discount to the US$47bn valuation it achieved in January.
Parent We Company is hoping that it can kick off its IPO in October after updating its earnings with a strong third quarter performance, but runs the risk of weak demand towards year end, Reuters reported.
Lenders are locked in after committing to provide the loan, which was contingent on the IPO, but not the valuation. There are no extension options in the loan agreement and if WeWork fails to IPO by December 31, banks' commitments will expire.
If WeWork wants to extend the loan, it will have to approach lenders again, bankers said, which could be an uphill struggle as investors’ view of the loss-making company’s business model cools.
“We had to imagine this company with its momentum, with its US$3bn IPO proceeds, the bank debt and cash. It was hard to believe that we would have a large problem in the next five years to create a financial stress,” the banking source said.
Thirteen banks have provided the loan but asked for changes to the deal as doubts grew about WeWork’s valuation in order to get more comfortable with making large commitments as the company’s value fell.
Nine of the eleven banks invited in August to make commitments of US$750-800m signed up – JP Morgan, Goldman Sachs, Bank of America Merrill Lynch, Barclays, Citigroup, Credit Suisse, HSBC, UBS and Wells Fargo. Another four banks, Bank of Montreal, Mizuho, Credit Agricole and Deutsche Bank, subsequently joined the deal with commitments of US$250-500m.
Lenders called for additional protection on the US$6bn loan, which consists of a US$2bn letter of credit priced at 100bp over Libor, and a US$4bn delayed draw term loan, which is priced at 475bp.
A cash collateralization was added to the US$2bn letter of credit, which can require borrowers to deposit cash matching the size of the loan as collateral, and the deal was also secured on the IPO proceeds.
Access to the US$4bn delayed draw term loan was originally restricted with only US$1bn of the US$4bn available initially and WeWork had to maintain a minimum amount of liquidity.
Banks were expected to syndicate the US$4bn loan to the institutional market to further reduce their exposure, which now looks increasingly difficult, with a question mark hanging over the IPO that could jeopardize their fees.
“The bet was that the company would have enough incentive in terms of pricing and tenor to replace the delayed draw loan quickly in the bond or the institutional (term loan B) market,” a second banking source said.
Lenders stand to make 2-3% fees on the loan, which would bring in US$100-160m, and could make additional fees of 1-1.5% or US$60m by selling the debt to the institutional market.
The company’s IPO is still hanging in the balance, however, as SoftBank, the biggest external investor in WeWork, tries to protect a US$2.5bn investment. A sub-US$20bn valuation would force SoftBank to inject another US$1bn to anchor the US$3bn IPO to limit dilution.
“The assumption was that the equity values would have to come at a certain floor, in the 20s, otherwise it wouldn’t make sense to do the IPO,” the first banking source said. (Reporting by Michelle Sierra. Writing by Tessa Walsh. Editing by Jon Methven.)
