Time is running out for WeWork’s $ 6 billion loan after IPO postponed
NEW YORK, Sep 19 (LPC) – WeWork must complete a US $ 3 billion initial public offering (IPO) before year-end to retain access to a crucial $ 6 billion loan US dollars, after delaying filing this week due to growing concerns over the company’s valuation.
The $ 6 billion loan is contingent on the issuance of shares and WeWork has until Dec. 31 to go public before losing access to credit, which is critical for the company’s expansion, have indicated sources.
“The initial wait was September or October to launch the IPO,” a banking source said. “If they don’t do this during this window, the (loan) commitment will expire.”
The American office-sharing start-up made the last-minute decision this week to postpone an investor tour for its IPO which was due to launch on September 16. the $ 47 billion valuation it achieved in January.
Parent company We Company is hoping to launch its IPO in October after updating its results with a strong third-quarter performance, but runs the risk of weak demand towards the end of the year, Reuters reported.
Lenders are stranded after pledging to provide the loan, which was dependent on the IPO, but not on the valuation. There are no extension options in the loan agreement and if WeWork fails the IPO by December 31, the banks’ commitments will expire.
If WeWork is to extend the loan, it will have to contact lenders again, the bankers said, which could be an uphill struggle as investors’ view on the loss-making firm’s business model cools.
“You had to imagine this company on its way, with its $ 3 billion IPO, bank debt and cash. It was hard to believe that we would have a big problem over the next five years to create financial stress, ”the banking source said.
Thirteen banks granted the loan but demanded changes to the deal as doubts grew over WeWork’s valuation in order to feel more comfortable making large commitments while the company was valued. was decreasing.
Nine of the eleven banks invited in August to make pledges of $ 750 million to $ 800 million signed – JP Morgan, Goldman Sachs, Bank of America Merrill Lynch, Barclays, Citigroup, Credit Suisse, HSBC, UBS and Wells Fargo. Four other banks, Bank of Montreal, Mizuho, Crédit Agricole and Deutsche Bank, then joined the deal with pledges of $ 250 million to $ 500 million.
Lenders have requested additional protection on the $ 6 billion loan, which consists of a $ 2 billion letter of credit priced at 100 bps to Libor, and a $ 4 billion deferred drawing term loan. billion dollars, priced at 475bp.
A cash collateral was added to the $ 2 billion letter of credit, which may require borrowers to deposit cash for the size of the loan as collateral, and the deal was also secured on the proceeds of the loan. Initial Public Offering.
Access to the US $ 4 billion deferred drawing term loan was initially limited with only US $ 1 billion of the US $ 4 billion initially available and WeWork had to maintain a minimum amount of liquidity.
The banks were to syndicate the $ 4 billion loan to the institutional market in order to further reduce their exposure, which now seems increasingly difficult, with a question mark hanging over the IPO that could jeopardize their fees.
“The bet was that the company would have enough price and duration incentives to quickly replace the deferred drawing loan in the bond or institutional market (B term loan),” said a second banking source.
Lenders are expected to charge 2-3% on the loan, which would bring in US $ 100-160 million, and may charge an additional fee of US $ 1 to 1.5% or US $ 60 million by selling the debt to the bank. institutional market.
However, the company’s IPO is still in play as SoftBank, WeWork’s largest outside investor, tries to protect a $ 2.5 billion investment. A valuation below $ 20 billion would require SoftBank to inject an additional $ 1 billion to anchor the IPO of $ 3 billion to limit dilution.
“The assumption was that stock values would have to bottom out in the 1920s, otherwise it wouldn’t make sense to go public,” the leading banking source said. (Reporting by Michelle Sierra. Written by Tessa Walsh. Editing by Jon Methven.)