WeWork is reportedly planning to tap investors via the risky junk-bond market again as its IPO stumbles
- WeWork, the office space company that is soon scheduled to go public, is reportedly looking to raise cash for the company by selling junk bonds, according to Bloomberg.
- It's an approach taken by Netflix, Uber, and Tesla in the past where companies use brand name to lure investors to fuel growth plans - banking on the idea that those investors value potential when it comes to investments.
- WeWork's flailing IPO plans could see a return to the high yield space to find funding.
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WeWork may be scheduled to go public later this year but could still look to raise cash through selling junk bonds, according to Bloomberg.
Bloomberg, citing a person familiar with the matter, said an unnamed WeWork executive told analysts in a meeting about the plan to sell those junk bonds.WeWork "plans to rely on junk bonds for funding for the foreseeable future," the news organization wrote on Monday.
It's a strategy that's been used by Netflix, Tesla, and Uber in the past, where companies bank on the idea that investors value the long-term potential of a company that's ready to buy risky bonds for a better return, in order to finance the company.
WeWork has had a rough week.
The debt plan comes after Softbank, one of the largest outside shareholders of the company, reportedly urged WeWork to shelve the IPO amid the company slashing its valuation from $47 billion to $20 billion. A junk-bond sale could be an effective, and potentially cheaper, way for the company to find funding if it can't raise the money it needs from an IPO.
Netflix last year had returned to selling $2 billion worth of junk bonds to raise cash as it faces stiff competition from Disney's new streaming service Disney+ and other streaming services like Amazon prime and AT&T.
WeWork's IPO has raised doubts among investors after its IPO filing showed that despite revenue doubling, to over $1.5 billion in the first half of 2019, losses swelled by 25% to $905 million, as well as the company currently being $1.3 billion in debt, according to Bloomberg.The company has previously tapped this part of the market to help fuel its expansion as yield hungry fixed investors look to riskier bets to make returns.
WeWork's credit strategy has been laid out by the company executive's comments. Bloomberg said that WeWork has a $6 billion credit line which is "contingent" on the office space company raising $3 billion from its IPO.
WeWork currently has a credit rating of B from both Fitch Ratings and S&P Global Ratings and has $1.3 billion in long term debt.
In doing so it attracted $6 billion in investor demand highlighting the appeal that junk bonds of lucrative companies can have.
The WeWork executive also reportedly said that the company has locations that have solid cash flow which could be used in a "whole business bond offering." The executive also said that WeWork is comfortable managing debt, Bloomberg said.
Callum Burroughs contributed reporting to this article.