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Comment by aresant | Hacker News Reader

Softbank has $12b+ up so far into WeWork. (a)

So are they better off supporting the IPO price by exposing themselves another $3b (20%), writing down the IPO by 50% which likely is at least $3b in losses, or delay?

And muddying their view, as I commented yesterday, is the fact that there is a huge debt contingency surrounding this IPO.

EG if WeWork does NOT raise at least $3billion in this IPO they will be in default of a contingency with lenders that will WITHHOLD a committed $6billion credit line. This huge credit facility is their growth engine forward (b).

(a) https://www.reuters.com/article/us-wework-m-a-softbank/wewor....

(b) https://www.bloomberg.com/news/articles/2019-08-01/wework-se....

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Both of your links are broken.

In case of a default, what would happen to all the companies who could on WeWork operating for their office to remain functional?

tbtf. fed will step in

No chance this will happen.

Unlikely.

Why?

The Federal Reserve only steps in when there is 1) system wide risk, and 2) when the company they are interfering with owns enough assets to guarantee the fed loans.

* Bear Sterns had healthy assets, Lehman Brothers did not. AIG had enough healthy insurance premiums to guarantee the loan to fix the unhealthy insurance products. Fannie Mae and Freddie Mac owned the home mortgages assets.

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1) WeWork doesn't have a substantial enough real estate position to bring down the entire real estate system.

2) WeWork doesn't have any assets to guarantee a fed loan.

should have put an /s

They will be in Regus/IWG the next week, and a week after that will have forgotten that WeWork ever existed.

IWG is tiny (a mere $3b in revenue; $4b-$5b market cap), they'd never land all of WeWork's customer base or WeWork itself. They'd trivially be outbid. SoftBank would acquire WeWork and continue operations before they'd let the business go to a small company like IWG or watch WeWork get acquired for ~$500m-$1b (which is all someone like IWG could afford).

Far larger players like SoftBank, Blackstone or KKR would be all over scooping up the bones of WeWork. There's certainly no scenario where WeWork doesn't end up in the belly of a private equity company, or a large real-estate holding company. The next recession will destroy them. They'll be lucky if they survive even outside of a recessionary environment.

IWG is tiny

This analysis looks very different if you do it not in dollars but in sq ft, or in desks. IWG is much bigger than WeWork, but realistically valued.

IWG has 10x the total square feet to rent that We Work has.

WeWork is on pace to hit ~3-4b revenue this year

Does Regus/IWG have the capacity to absorb the demand?

Apparently the two companies are roughly the same size in terms of square footage under management. (IIRC IWG is a little bigger.)

So not likely IWG could absorb significant percentages of WeWork customers on short notice.

If WeWork goes under there are going to be large amounts of co-working space going cheap.

...so short CRE REITs, am i right?

I don't advocate active trading unless you have substantial non public information, and I don't think this meets my non-public criterion

Stay out of REITs anyway; once they have your money they essentially never have to give it back. I can't imagine how something so illiquid could be shorted in the first place.

Aren't REIT mutual funds the most likely vehicle for a retail investor to invest in REITs?

That's a good problem to face.

Since they don’t own any buildings I bet we see the WeWork ceo sell the buildings and or move to establish small clones of WeWork with local contracts.

Depends on just how bad the default is but they'd likely go into some kind of managed bankruptcy. Since WeWork doesn't actually own the buildings companies could wind up making deals more directly with the CEO who does own the buildings to at least maintain the space so they'd just lose the other services provided by WeWork and wind up in a more normal relationship with the building owner. Hard to know without it happening because it depends so much on the details of how it happens and the reaction of so many parties.

I wouldn't even worry about having a place to work out of. VC funding has been drying up and a massive down round or a default is going to close that right up.

> In case of a default, what would happen to all the companies who could on WeWork operating for their office to remain functional?

Giant rate hike.

If WeWork shuts down or defaults, smart landlords/property managers will take over operations. They're stuck with the space, and WeWork has already done the hard work of getting the short term tenants. Transition the tenants to "leases" directly with the landlord, keep the wifi on, the coffee brewing, and the place clean. In the near term does the tenant care if WeWork is running the place?

That $3b in "losses" would be paper losses, but would also improve any ratios that are based on the total value of the company. In doing so, it would reduce some of the pressure on WeWork to produce higher revenues.

Unless there are expected revenue targets that aren't ratios.

Paper losses that trickle up to parent SOFTBK stock which has been pledged as collateral for loans.

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