WeWork prefers JPMorgan lifeline to rescue by SoftBank

Financing package worth $6.8b may save office-sharing venture

NEW YORK • WeWork's bankers are pitching investors on what would be one of the riskiest junk debt offerings in recent years - potentially giving the co-working start-up giant's top private shareholders a final chance to avoid having their stakes severely diluted.

A roughly US$5 billion (S$6.8 billion) financing package led by JPMorgan Chase is the company's preferred option, rather than selling a controlling stake in itself to SoftBank Group, according to people with knowledge of the matter.

The structure and terms under discussion may change, depending on investor appetite. The financing may include at least US$2 billion of unsecured payment-in-kind notes with an unusually hefty 15 per cent coupon, one person said.

WeWork's leaders hope to turn around the office-sharing venture with emergency borrowing, even if it is expensive, rather than watch early backers' equity and influence diminished in a rescue by SoftBank. WeWork's top stakeholders include its controversial co-founder Adam Neumann, as well as venture capital giant Benchmark Capital. Their holdings soared in value and then cratered as investors spurned an attempted initial public offering, which was halted last month.

JPMorgan's bankers are said to be discreetly sounding out investors and floating potential terms for the package of debt, which could help the unprofitable start-up avoid running out of money.

The financing would rely on WeWork's largest shareholder, SoftBank, following through with a plan outlined in a regulatory filing to contribute at least US$1.5 billion in funding next year, according to one of the people, who asked not to be named.

Representatives for WeWork and JPMorgan declined to comment.

As recently as last month, WeWork's parent, We Co, appeared to be headed towards a rich valuation in its public debut before investors baulked at concerns over the venture's governance and mounting losses. The company ended up ousting Mr Neumann as chief executive officer and postponing the offering. The delay leaves WeWork without a crucial source of funding: a US$6 billion loan contingent on a successful initial public offering (IPO).

The financing plan JPMorgan is developing could give the company some breathing room.

JPMorgan's assistance reflects the combination of financial and reputational interests as well as CEO Jamie Dimon's mantra that the bank "be there in good times and bad" for its clients. The bank is already the lead lender on WeWork's US$650 million revolver loan and a major lender to Mr Neumann. Its funds are among WeWork's largest shareholders.

There is no guarantee the financing package will be completed, as it is unclear if there is sufficient demand from banks and debt investors. WeWork has said about 60 financing sources have signed confidentiality agreements as part of the process, indicating that JPMorgan and the company are casting a wider net than is typical for such a deal, according to people familiar with the process.

But as talks continue, people inside WeWork view a potential sale of a controlling stake to SoftBank as a back-up plan, less desirable to employees whose holdings would shrink in such a deal, according to people with knowledge of their thinking. WeWork is expected to make a decision as soon as this week about which option it will proceed with.

Since pulling its IPO, the start-up's new leaders have promised to rein in its once lavish spending. The venture has said it is looking to offload several of the companies it recently acquired. It also plans to shutter an elementary school located in its corporate headquarters in New York and even put up its US$60 million corporate jet for sale.

Mr Masayoshi Son, the head of SoftBank, last month tasked chief operating officer Marcelo Claure, a former CEO of Sprint Corp, with cleaning up WeWork, said people familiar with the matter. Mr Claure's role has not been defined but the people said he would be looking for ways to cut costs and boost revenue.

BLOOMBERG