The We Company, WeWork Co., is employing an extraordinary strategy to bolster its planned initial public offering to avoid meeting a fate similar to Uber Technologies Inc.
WeWork, which lost $1.9 billion last year despite rapid revenue growth, is planning to raise up to $4 billion through a debt facility over the coming months to finance growth, and that debt could rise to $10 billion over the next several years, according to sources quoted by the Wall Street Journal.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. have devised and are backing the debt plan to make the IPO more attractive, and are assuring investors that the company will be able to fund growth in the coming years without having to turn back to the equity markets. It is also designed to demonstrate the value of the company’s leases and cash flows. Many of its individual properties are already profitable, and a large portion of its losses come from growth initiatives.
A co-working network at its core, We Co. leases properties and turns them into community spaces that it rents out to small businesses, startups, and larger enterprises. Recently, the firm has expanded its operations in an effort to become a more diversified company.
WeWork was valued as high as $47 billion when it raised capital from SoftBank earlier this year.
While many are skeptical that the company justifies that lofty valuation, bulls argue that investors should view the company as a tech firm with an expanding array of services and business lines.
Cash flows from WeWork’s leading operations will be used to pay the interest on the debt, according to The WSJ. Since investors in the new debt facility would be granted access to cash flow, the company could raise cash at a lower interest rate than it would secure in the corporate bond market. Followed by the debt deal, WeWork would then go through with its IPO slated for later in 2019 or early next year.
