WeWork is set to appear in a US bankruptcy court for the first time on Wednesday, as it aims to move forward with a restructuring plan that could reduce its debt by $3 billion and downsize its real estate holdings. The office space-sharing firm, which received backing from Softbank, filed for bankruptcy protection in the Newark, New Jersey bankruptcy court earlier this week.
The filing was made to address a debt burden of over $4 billion coupled with unsustainable rental expenses, as per a report by Reuters. WeWork, which was once valued at $47 billion, faced losses owing to long-term leases and lower demand resulting from the pandemic.
The company initiated a Chapter 11 bankruptcy proceeding in New Jersey, indicating assets and liabilities within the $10 billion to $50 billion range. This move permits WeWork to maintain its operations as it tackles its debt situation.
Following a previous unsuccessful attempt to restructure its debts and avoid bankruptcy, WeWork struck a deal with over 90 per cent of its bondholders to transform $3 billion of debt into company equity. The proposed restructuring would also allow Softbank, which currently holds approximately 70 per cent of the company, to maintain its equity position.
Moreover, the company effectively renegotiated 590 leases prior to the bankruptcy filing, resulting in savings of approximately $12.7 billion in future rent obligations. However, WeWork acknowledges that further efforts are needed to manage its rental expenses efficiently.
The company has identified 69 leases to terminate initially, including 41 in New York City, and may reject more leases during the bankruptcy. It is also looking to renegotiate terms with 400 landlords for other properties.