- Access to credit line guaranteeing rents one sticking point
- Bankruptcy is company’s latest attempt to fix balance sheet
Some owners of WeWork Inc.’s more than 700 properties are objecting to the company’s plans to shut down nearly half of its US and Canadian locations in bankruptcy.
Objections filed Tuesday, the deadline for such motions, pushed back on the company’s timeline for rejecting leases, and rules they say wrongly favor WeWork. For example, one landlord claims WeWork would retain the right to stay in a location, even after canceling a lease.
The filings provide a fresh look at the delicate balance WeWork must strike as it seeks to renegotiate or shed onerous leases, a key part of its bankruptcy plan. It’s in talks with landlords for hundreds of properties about rent cuts and other concessions, and must be careful not to push so aggressively that landlords choose to walk away and seek new occupants.
“WeWork is walking a fine line because it has to aggressively cut rent costs in order to reorganize successfully, but at the same time its future depends on maintaining healthy relationships with some of those same landlords if it hopes to strike new agreements with them after emerging from bankruptcy, ” said Evan DuFaux, a special situations analyst at the research firm CreditSights. “The case is likely to turn on the landlords’ strategy regarding renegotiation and rejection of leases.”
A representative for WeWork didn’t immediately respond to a request for comment. Representatives for Kirkland & Ellis and Hilco didn’t immediately comment.
WeWork filed for bankruptcy on Nov. 6, a move that gave it broad rights to reject or cancel contract agreements that are not financially feasible, including leases. It was earlier attempting to negotiate with landlords outside of court.
WeWork’s advisers from law firm Kirkland & Ellis and real estate specialist Hilco Global have been asking for rent cuts in a range of sizes, sometimes above 25%, according to a person with knowledge of the matter who asked not to be identified discussing private information.
Some landlords have also expressed concern over their ability to draw on collateral that guaranteed their rental income. A $1.5 billion letter of credit facility that backed rent promises at some of the properties is of issue in some of their objections.
WeWork “appears to be trying to play a game of ‘Gotcha’ with unsuspecting mom and pop landlords in order to force them into what are effectively new leases that WeWork would otherwise be unable to obtain in any legal or consensual manner,” lawyers for the owner of the company’s headquarters said in a court filing.
The company will be back in court next week to ask Judge John Sherwood to approve rules for canceling leases and paying any associated costs. Such rules are typically seen in big retail cases, where a company faces pressure to quickly analyze the profitability of hundreds of stores and then decide which to close and which to keep open.
Under Chapter 11 rules, companies have up to 210 days to decide whether to cancel a lease. Other contracts, like those signed with suppliers or customers, have no time limit.
The case is WeWork Inc., 23-19865, U.S. Bankruptcy Court for the District of New Jersey (Newark).
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