As rumored it would, WeWork has filed for Chapter 11 bankruptcy protection in New Jersey. It has struck an agreement with 92% of its creditors that hold its secured debt that includes restructuring its more than $13 billion in lease obligations and converting $3 billion of existing loans and bonds into equity.
"Now is the time for us to pull the future forward by aggressively addressing our legacy leases and dramatically improving our balance sheet," said CEO David Tolley, in prepared comments. "We remain committed to investing in our products, services, and world-class team of employees to support our community."
As part of its bankruptcy filing, WeWork has asked to give up 69 leases.
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The company has been negotiating with more than 400 landlords for the past few months to improve lease terms, citing an "inflexible and high-cost lease portfolio" that was a consequence of "a period of unsustainable hypergrowth".
The landlords have taken a "realistic approach" to these negotiations, Tolley told the Financial Times before the filing.
"Certainly some of these negotiations will be contentious and many will not."
The bankruptcy gives WeWork a stronger hand in these negotiations as it is able to reject undesirable leases and to walk away from any resulting damages claim. The rejected leases then turn into unsecured debt, meaning the landlords would line up behind bondholders and any other secured creditors.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
