Fitch Ratings has downgraded WeWork’s credit rating to ‘CC’ from ‘CCC-’ following “worse than expected Q2 financial results, a public warning that the company’s ability to continue as a going concern over the next 12 months will be contingent on improving its liquidity, resignations of key executives and board members, and the replacement of board members with restructuring experts”.
Fitch also downgraded the company’s issue-level ratings of first-lien bonds to ‘CCC-‘/’RR3’ from ‘CCC’/’RR3’ and affirmed its second-lien and unsecured bonds at ‘C’/’RR6’.
In its rating action commentary in May, Fitch said WeWork’s “adequate liquidity” depended on the company’s continued improvement in operating performance.
“However, the necessary improvements have not materialised and WeWork continues to burn through cash,” said Fitch. “As of March 31, 2023, the company reported $422m of cash on the balance sheet, which was down to $205m as of June 30, 2023.”
The company added: “WeWork released projections in 2021 and 2022 for growth and cost reductions that would at least lead to breakeven results. But operating performance has been consistently worse than the projections. In its most recent public comments, the company warned that churn has increased, and cash burn continues. Since the pandemic, WeWork has indicated that the turmoil in commercial real estate markets provides them with an opportunity both in demand for flexible workspace and in their pricing power; however, the company’s performance has yet to reflect this.”
Last week, WeWork warned that a “substantial doubt exists about the company’s ability to continue as a going concern” as a result of its losses, projected cash needs, increased member churn and current liquidity levels.
In its Q2 and H1 results, the flexible workspace company reported its revenue increased 7% to $844m year-on-year for H1 2023, however, it made a net loss of $397m – a $238m improvement year-on-year. WeWork said its consolidated physical occupancy was just 72% at the end of Q2 and reported high member churn and softer demand than anticipated.
The company said its ability to continue as a going concern was contingent on the “successful execution of management’s plan to improve liquidity and profitability over the next 12 months, which includes, without limitation: reducing rent and tenancy costs via restructuring actions and negotiation of more favourable lease terms; increasing revenue by reducing member churn and increasing new sales; controlling expenses and limiting capital expenditures; and seeking additional capital via issuance of debt or equity securities or asset sales”.
