RPT-WeWork obtains commitments for US$6bn IPO-linked debt

(Refiled for wider distribution)

By Michelle Sierra and Aaron Weinman

NEW YORK, Aug 5 (LPC) - Workspace provider WeWork has obtained commitments from at least 10 banks for US$6bn in credit facilities that remain contingent on the company's ability to push through with its planned initial public offering, sources told LPC.

JP Morgan is leading the transaction, while Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley, Citigroup, Wells Fargo, Credit Suisse, Barclays, UBS, Deutsche Bank and HSBC have also been invited to the financing, according to sources.

By close of business on Monday, at least 10 banks had committed either US$500m or US$750m each to the loans.

The loans, which will be offered to additional banks later this month, include a US$2bn letter of credit facility and a US$4bn delayed-draw term loan. Pricing on the delayed-draw loan is 475bp over Libor and will come with a three-year maturity after the completion of the IPO.

The delayed-draw facility will be structured as a "warehouse financing" to which the banks were expected to commit by August 2, but will only be drawn upon if the company successfully raises at least US$3bn in its planned IPO.

The US$4bn tranche is expected to include a mechanism that will allow the debt to flip into either a term loan B to be sold to institutional investors or a high-yield bond after the IPO takes place.

"A warehouse delayed-draw term loan is an interesting concept that we haven’t seen before," a senior banker following the situation said. The delayed-draw facility includes a minimum liquidity covenant, while the letter of credit is contingent on the company maintaining at least US$1bn in cash.

Based in New York, WeWork announced last December its plans to list shares. The offering is expected to come after the Labor Day holiday in the US.

WeWork and JP Morgan declined to comment.

ODD ENOUGH

While credit facilities have previously been tied to IPOs, WeWork’s debt financing comes with more contingencies than usual, which suggests that the company has been compelled to provide additional certainty in tapping banks for funding.

WeWork’s business model, leasing to tenants under shorter-term contracts and renting buildings under longer-term leases, has in the past been brought into question, as it could suffer in the event of an economic downturn.

The workspace provider, however, is concentrating on attracting longer-term staff teams from corporations, alongside smaller firms to increase its occupancy levels.

Pressure mounted on a potential WeWork IPO after Japanese conglomerate and investor Softbank Group in January scrapped a planned US$16bn investment into the company.

"As part of the IPO strategy, they’re looking to improve valuation by saying that the next amount of cash capital has been committed and won’t further dilute equity holders," a source close to the transaction said.

The company, valued at US$47bn, disclosed losses of US$1.9bn in March and revenues of US$1.8bn, according to the New York Times.

Though facing different uncertainties, ride hailing transport startups Uber Technologies and Lyft, two of this year’s larger IPOs, were scrutinized for heavy losses at the time of their stock offerings. Both currently trade below issue price, despite the market’s high expectations prior to the launch.

WeWork has a US$650m revolver in place that expires in 2020. In April 2018, it raised US$700m from the sale of high-yield bonds with a coupon of 7.875% that matures in 2025.

JP Morgan, which also arranged the existing bank loan, has already been mandated as a bookrunner on the IPO, according to Refinitiv IFR. (Reported by Michelle Sierra and Aaron Weinman; Additional reporting by Steve Lacey Edited by Jack Doran)