Hedge fund King Street Capital Management has bought into the debt of flexible office provider WeWork, which is trading at a deep discount to its face value.

King Street is snapping up WeWork’s bonds ahead of a refinancing deadline of 2025, The Sunday Times reported. The refinancing is not imminent, but the discount at which the bonds are trading implies bond investors think there is a chance that its debt won't be repaid.

King Street declined to comment.

A hedge fund might buy into the debt of a company because it thinks it is undervalued or because, if there is a financial restructuring, owning the debt can give it a say in future ownership discussions.

In 2018, when the company was in growth mode under the leadership of now-ousted founder Adam Neumann, WeWork issued $700M of bonds that mature in 2025. Those bonds are now trading at a 40% discount to their par value. That is up from the 60% discount at which they were trading at the end of 2022. But as recently as June 2021, the bonds were trading at a premium to their par value.

King Street is now the second-largest holder of this WeWork bond, the Sunday Times said. The company has another $2.2B of outstanding debt, also due in 2025, owed to SoftBank, its largest shareholder. The company had $460M of cash and $500M of undrawn credit facilities as of the end of Q3.

Fitch downgraded WeWork’s bonds to CCC, considered junk bond territory, in December. It said it made the downgrade because despite improved earnings before interest, taxes, depreciation and amortization, WeWork still faces a difficult operating environment.

Without further lease restructurings, Fitch said the company is likely to continue to make losses.

WeWork shares are down 84% to $1.55 a share since it floated in autumn 2020.

An overview of analyst estimates of Q4 results, to be released on the morning of 16 February, said analysts expected WeWork to make a loss of 41 cents per share in Q4 from revenue of $873M.

The average rating of the six analysts surveyed was a buy, with an average target price of $7.25 a share.