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WeWork Is Now One Step Away From Junk-Bond Market’s Weakest Tier

Sally Bakewell
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WeWork Is Now One Step Away From Junk-Bond Market’s Weakest Tier

(Bloomberg) -- S&P Global Ratings cut WeWork’s credit rating further into junk, putting the office-sharing company at the doorstep of the market’s weakest tier of borrowers. The company’s bonds fell to the lowest level in six months in late trading Thursday.

WeWork, or We Co. as it’s now named, was downgraded one level to B- after a delayed initial public offering and management shakeup cast doubt on its ability to raise cash, S&P said in a statement. The credit rater also lowered its outlook to negative, meaning it could opt to cut the rating again in the next six to 12 months if WeWork fails to secure additional financing.

The company’s credit agreement includes a liquidity covenant requiring its cash position to remain above $500 million, and it could struggle to meet that threshold if it doesn’t pin down extra funds, S&P said. S&P also said it was revising its liquidity assessment for WeWork to “less than adequate.”

A representative for WeWork declined to comment on the ratings downgrade, citing a pre-IPO quiet period.

WeWork’s $669 million of 7.875% bonds due in 2025 fell 1 cent to 91 cents on the dollar, pushing its yield to 10% for the first time since March. according to Trace.

S&P’s rating puts WeWork one step away from the CCC tier, which it defines as borrowers that are unlikely to have the capacity to meet debt obligations if business, financial or economic conditions deteriorate.

Fitch Ratings lowered its issuer default rating for WeWork last month, but still grades it one step above S&P at B.

Delayed IPO

The company’s prospects are looking increasingly bleak after it delayed an IPO, likely until at least next year. The shelved offering, which was supposed to raise at least $3 billion, also upends a $6 billion credit facility. The company is in talks with Goldman Sachs Group Inc. and JPMorgan Chase & Co. about a new $3 billion loan, people with knowledge of the matter have said.

S&P’s downgrade also follows a corporate upheaval that included the ouster of founder Adam Neumann as chief executive officer. The company is losing millions of dollars a day and lost $690 million in the first six months as it prioritized growth over profitability.

“It is our belief that heightened strategic and governance uncertainty may further complicate avenues to raise additional capital, thereby straining liquidity and forcing a review of the company’s aggressive growth plans and operating strategy,” S&P analysts wrote in their report.

S&P hasn’t factored in any other capital injections from its biggest investor SoftBank Group Corp., other than $1.7 billion due in 2020. That includes $1.5 billion due in April and $200 million due in the second half of 2020. SoftBank is said to be discussing with WeWork whether to increase its $1.5 billion pledge to the co-working startup, the Financial Times reported Wednesday.

--With assistance from Ellen Huet.

To contact the reporter on this story: Sally Bakewell in New York at sbakewell1@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Shannon D. Harrington

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