As per a Wall Street Journal report, WeWork recently planned to file for bankruptcy next week. The news came out on Tuesday, as the company is struggling with huge debts and hefty losses, even though it has backing from the Softbank Group. WeWork is a flexible workspace provider based in New York.
After the reports from WSJ, the shares of WeWork fell by 32% in extended trading. This year, the company’s shares fell by 96%. Hence, the company is filing a Chapter 11 petition in New Jersey, as per reports from people familiar with the matter.
However, the company declined to comment on any of these issues. On early Tuesday, WeWork informed that it had entered into an agreement with various creditors for postponing payments temporarily for some of its debts. The grace period of the debt is also coming to an end soon.
According to Reuters.com,
“The company had net long-term debt of $2.9 billion as of June end and more than $13 billion in long-term leases, at a time when rising borrowing costs are hurting the commercial real estate sector. WeWork’s filing for bankruptcy would mark a stunning reversal of fortune for the company that was privately valued at $47 billion in 2019 and a black spot for investor SoftBank that sunk billions.”
The company came under problems ever since its plans to go public in 2019 failed after investors became skeptical. This skepticism was due to its business model, where it takes long-term leases and rents them for the short term and worries over hefty losses.
In subsequent years, the problems of WeWork did not lessen, as the company finally went public in 2021. However, this time, its valuation was much less. Softbank, the Japanese conglomerate, meanwhile invested tens of billions to make the startup grow.