https://www.bloomberg.com/opinion/articles/2019-05-22/wework-s-junk-bonds-lose-their-ipo-pop Let’s start with Ellen Huet’s Businessweek feature this month on the shared-office-space provider. In it, she revealed for the first time that “WeWork is creating an investment fund that aims to raise billions of dollars to buy stakes in buildings where it will be a major tenant.” Conflicts of interest seem destined to come into play. Adam Neumann, WeWork’s CEO and co-founder, told Huet: “Everyone wants to know what ARK is. I think it’s going to be amazing.” Besides, he said, in one of the article’s more telling quotes, “I’m a great real estate buyer, so if I bought for $100, it’s probably worth $300.” With that sort of unabashed confidence in mind, it’s easy to see how the company reportedly issued $702 million of junk bonds instead of $500 million, simply because 702 was deemed a lucky number. What’s an extra $202 million of debt in the capital structure, after all? Among the biggest public holders of those bonds are Lord Abbett & Co. and the Teachers Insurance and Annuity Association of America, which as of their most recent filings own about 6% and 5% of the debt, respectively, data compiled by Bloomberg show. Representatives for the fund managers said they don’t comment on individual holdings. Bondholders could very well be fine, as long as WeWork retains its ability to attract funding. The debt matures in six years, which wouldn’t feel like an especially long time in most cases. But it does when lending to a company with WeWork’s kind of cash drain. How confident can anyone be that it’ll weather a downturn? As Scott Crowe at CenterSquare Investment Management noted skeptically to Huet: “They don’t make money even with the economy roaring.” How Fast can they get to 30 Billion in Debt and 4 Billion a year net loss ?
Going to be really fascinating to see how this company fairs during the next recession... The CEO mentioned just days ago that his company was Recession Proof!!! Yep...