WeWork Finds Favor In Debt Market To Tune Of $700M

Despite a lack of cash flow and a middling credit rating, WeWork managed to blow out a bond sale to the tune of $702M.

The New York-based co-working operator, which hit a valuation of $20B last year, sold seven-year bonds at par with a nearly 8% interest rate, surpassing an initial deal size expected to be $500M, the Wall Street Journal reports.

This bond sale came despite investor concerns that WeWork has few assets, numerous office lease obligations across the globe, including in some of the priciest real estate markets like New York and San Francisco, and has negative cash flow. While bond investors typically shy away from risk as the reward is not as enhanced as equity investors, WeWork's valuation could be a vote by capital that it is committed to the company through its growth strategy and that default was less likely, the WSJ reports. The company has a single-B credit rating as well.

“This is still a startup. Traditional credit metrics don't apply here,” Invesco head of high-yield investments Scott Roberts said.

According to bond documents reviewed by the WSJ, WeWork reported that earnings before interest, taxes, depreciation and amortization were more than $190M in the red. But the company reported an EBIDTA of nearly $50M “before growth investments” and a “community adjusted Ebitda” — which excluded general and administrative expenses — of more than $230M.

Despite rising costs as it pushes aggressive growth globally — the company has a global portfolio of 14M SF across 234 locations — WeWork's occupancy rose 5% last year to 81% and revenues jumped 100%. At the same time, WeWork's rent liabilities blossomed, with bond documents showing the firm is committed to paying $5B in rent through 2022, Bloomberg previously reported.

WeWork is at the spear tip of a shift in global office working habits. Between 2012 and 2017, the number of co-working spaces worldwide jumped from just over 2,000 to 15,500, according to Statista.

This growth has some experts calling for caution.

“We'll see some of the bigger guys still around and some of the smaller guys not,” Colliers International Atlanta Senior Vice President Jodi Selvey recently told a Bisnow audience. “I don't think they're all going to survive.”

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