WeWork to raise billions in debt pre-IPO

WeWork to raise billions in debt pre-IPO

12 July 2019

WeWork is reportedly preparing to raise between $US3 billion and $US4 billion in new debt financing before its expected initial public offering.

The Wall Street Journal first reported the news on Sunday, citing sources familiar with the matter that said the debt pile could grow to as much as $US10 billion over the next few years.

WeWork filed confidentially for an IPO with the Securities and Exchange Commission back in December 2018 and they have reportedly declined to comment on the report.

Earlier this year, WeWork also received $US2 billion in funding at a value of $US47 billion from the Softbank Group, a Japanese conglomerate that invests massive sums into startups across the world through its $US100 billion Vision Fund.

WeWork has raised a total of $US12.8 billion since its founding in 2010, according to data from Crunchbase.

WeWork belongs to the ranks of the heavily funded, money-losing startups like Uber and Lyft, which have found themselves doubted by some investors over their weak market performance after going public.

The thinking behind the deal is that issuing as much as $US4 billion ($5.8bn) in debt will reassure investors ahead of WeWork’s planned initial public offering that it is able to tap capital markets to fund its growth.

Yet this is from a money-losing company most recently valued at $US47bn. Regus owner IWG, founded in 1989, has a similar business. It booked revenue nearly twice as high as WeWork did last year yet it has an enterprise value above $US4bn.

That very Silicon Valley-esque valuation means that selling more shares, whether in a private or public deal, would bring WeWork some cheap funding. Selling unsecured debt, meanwhile, would be far more expensive since the company last did so at a rich yield. But that assumes it had a choice.

Early this year, major shareholder SoftBank planned to invest as much as $US16bn in WeWork, including $US6bn in new money. But after facing opposition from its partners, SoftBank scaled back its plans dramatically. Searching for cash to fund its business, WeWork filed to go public in April.