(Bloomberg) -- Morgan Stanley famously nabbed this year’s largest initial public offering, thanks partly to its top technology banker’s moonlighting job as an Uber driver. But the firm is nowhere to be found on what’s shaping up to be the year’s second-biggest IPO, WeWork.
Morgan Stanley stepped back from a lesser role in the deal after WeWork rejected its pitch to be the top underwriter, according to people with knowledge of the matter. The relationship became strained when the bank wouldn’t extend as much debt financing as WeWork was seeking from key lenders, the people said, asking not to be identified discussing non-public information.
The lead roles on the IPO and debt financing are held by JPMorgan Chase & Co., one of WeWork’s biggest investors and a long-time banker to Chief Executive Officer Adam Neumann. On the IPO alone, underwriters could slice up what could be more than $122 million in fees, assuming WeWork ends up paying 3.5%, a figure the company was discussing with banks this month. The final payout hasn’t been disclosed.
After the snub, Morgan Stanley chose not to commit as much as its biggest rivals to a $6 billion credit facility for the loss-making company, complaining about WeWork’s risk profile and credit requirements, people with knowledge of the matter said. It did offer to contribute a smaller amount along with a commitment from the bank’s largest shareholder and occasional partner, Mitsubishi UFJ Financial Group Inc. But WeWork wasn’t interested in that kind of arrangement, they said.
Bankers at the firm knew their decision to balk at the full credit commitment would risk Morgan Stanley’s role on an IPO, which is slated for September, some of them said. WeWork lost $690 million in the first half of the year, according to a regulatory filing Wednesday.
Representatives for Morgan Stanley, WeWork and MUFG declined to comment.
Morgan Stanley’s move was a surprise, considering its years-long pursuit of WeWork’s business. Michael Grimes, the New York-based firm’s top technology banker, had previously made a pitch to Neumann for a starring role on the IPO, people familiar with the matter have said.
Yet Grimes and Neumann didn’t hit it off, standing in the way of a closer partnership, the people said. Morgan Stanley’s competitors also had a leg up: Affiliates of both JPMorgan and Goldman Sachs Group Inc. are investors in the company.
Morgan Stanley was among lenders that led a junk-bond offering for WeWork last year, and it previously underwrote almost $10 million of mortgages for Neumann’s own homes. It was also part of a credit facility almost four years ago with JPMorgan, Citigroup Inc. and Deutsche Bank AG.
Morgan Stanley is also among WeWork’s clients. The bank hired the startup last year to overhaul some of its office space to make it more millennial-friendly.
But unlike JPMorgan, Morgan Stanley wasn’t among banks to loan Neumann money with his privately held shares as collateral. That $500 million loan, which also involved UBS Group AG and Credit Suisse Group AG, was considered risky by Morgan Stanley’s bankers, the people said.
WeWork’s IPO is expected to raise about $3.5 billion, second only this year to Uber Technologies Inc.’s $8.1 billion IPO in May. JPMorgan is leading WeWork’s $6 billion credit facility, and all the banks listed as arrangers are also underwriters on the IPO, including Goldman Sachs, Bank of America Corp., Citigroup and Barclays Plc.
Morgan Stanley could still do business with WeWork in the future, people familiar with the matter said.
(Updates with client relationship in 10th paragraph.)
--With assistance from Michelle F. Davis.
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