WeWork said on Monday that it would not make two sets of interest payments totaling about $95 million, a move meant to jump-start negotiations with its lenders at the same time it tries to cut costs with its landlords.
The missed interest payments will undoubtedly spur speculation of a bankruptcy filing. But WeWork says it has the cash on hand, and the company has a 30-day grace period to make the payments, which were due Monday. At the end of June, it had $205 million in cash and access to a credit line worth $475 million.
“I believe they will absolutely understand our decision to enter into the grace period,” WeWork’s interim chief executive, David Tolley, said in an interview. He called the move “typical” as a “precursor to a conversation.”
Skipping an interest payment is not necessary to negotiate with lenders. But it is a move sometimes used by indebted companies to put pressure on lenders to restrike deals under more favorable terms.
In the first half of this year, WeWork’s operations consumed $530 million. The co-working company warned investors in August that it may not be in business much longer unless it can decrease its lease costs and make its debt load more manageable.
In early September, WeWork said its lease costs made up more than two-thirds its operating liabilities, a heavy weight on its cash flow that it is trying to alleviate by renegotiating nearly all of its leases and pulling out of some unprofitable locations.
“What our lenders will really want to understand is the company’s credit profile when the landlord conversations reach a conclusion,” Mr. Tolley said.
Mr. Tolley said no decisions have been made about whether the company will ultimately file for bankruptcy, a move that would make it easier to shed unprofitable leases.
“We don’t know how that landlord negotiation is going to play out,” he said. “So we don’t know what the level of the profitability of the company is going to be.”
The missed interest payments come just months after WeWork struck a deal with its lenders, including SoftBank, to cancel or convert into equity about $1.5 billion of the company’s debt and give the company until 2027 to repay a large portion of its debt. At the time, the company expected the beleaguered commercial real estate market to return more quickly.
“It has become clear — or it seems very clear to me — that that wasn’t going to be enough,” Mr. Tolley said of the restructuring agreement.
The company has been trying to whittle down its lease costs for years, following what Mr. Tolley has called a “period of unsustainable hypergrowth.” In August, it hired the advisory firm Hilco Global to help with those efforts.
The same month, WeWork appointed a number of restructuring experts to its board.
Peter Eavis contributed reporting.
