WeWork (WEWKQ.PK) could be forced to take out a new bankruptcy loan to offset slower-than-expected progress in lease negotiations, a lawyer for the shared office space provider said Monday.
WeWork’s post-bankruptcy business plan is based on significantly reducing the future cost of rent (link) from its landlords, and WeWork is at a crossroads in that effort, according to attorneys for WeWork and its landlords at a hearing in bankruptcy court in Newark, New Jersey.
Several of WeWork’s landlords condemned the company’s “tough tactics,” saying U.S. bankruptcy law requires companies to pay rent on properties they continue to use.
Kris Hansen, an attorney representing WeWork’s creditors, said WeWork has shown “painfully little progress” in its discussions with landlords (link), raising doubts about the company’s long-term ability to pay its debts ( link).
WeWork lawyer Steven Serajeddini acknowledged that the company’s first round of negotiations was headed for “certain failure,” but he said WeWork had more success after withholding $33 million in January rent from certain landlords.
“The message was clear: You’re either with us or against us,” Serajeddini told U.S. Bankruptcy Judge John Sherwood, who oversees the company’s Chapter 11. “If you focus on one month’s rent instead of saving this business, you’ll be on the wrong side and your lease will be rejected.”
WeWork originally thought it could get through bankruptcy proceedings with the $164 million in cash it had on hand in November, but it now believes that amount is insufficient and is considering taking out a new bankruptcy loan, Serajeddini said. A new loan would likely be converted into WeWork equity after the company emerges from bankruptcy (link), he said.
WeWork, once valued at $47 billion, filed for bankruptcy in November (link). The Softbank-backed company (link) expanded at breakneck speed but suffered losses on its long-term rental commitments as more people worked from home during the pandemic and demand for office space collapsed.
The company is free to reject leases, but it cannot have it both ways by not paying rent while continuing to use the property, according to landlord Ivan Gold’s attorney.
“Withholding rent or, to quote some of my clients, ‘taking hostages’ is not conducive to negotiations,” Gold said.
Sherwood will consider the legality of WeWork’s withheld rent in January on Feb. 20, when he will hear claims from three landlords to pay more than $4 million in withheld rent.
2024-02-05 21:05:27
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