• Concerns including corporate governance practices have pressured WeWork Companies LLC's (The We Company) IPO, resulting in a suspension of the process and leadership changes.
  • It is our belief that heightened strategic and governance uncertainty may further complicate avenues to raise additional capital, thereby straining liquidity and forcing a review of the company's aggressive growth plans and operating strategy.
  • As a result, we are lowering our issuer credit rating on WeWork to 'B-' from 'B', and revising our outlook negative from stable. We are also revising our liquidity assessment to less than adequate.
  • At the same time, we are lowering our issue-level ratings on the company's senior unsecured notes to 'B' from 'B+'. The recovery ratings on the debt facilities are unchanged.
  • The negative outlook reflects the uncertainty tied to the company's capital raising ability and impact on its liquidity position in 2020 following poor market reception to its IPO. The negative outlook also captures the pivot in corporate leadership and related uncertainty around the company's future direction with respect to its operating strategies and growth plans.

NEW YORK (S&P Global Ratings) Sept. 26, 2019—S&P Global Ratings today took the rating actions listed above. The downgrade reflects heightened uncertainty around The We Company's ability to raise capital to support aggressive growth and the pressure this places on liquidity. These uncertainties stem from the weak reception of The We Company's IPO, partly related to what we view as subpar governance practices. Governance-linked questions and a series of changes in the week following the S-1 filing have weakened the prospects for a successful IPO by year-end, creating uncertainty about access to alternative capital resources. Despite some improvements in governance practices subsequent to the initial filing, it is unclear whether the changes will lift investor sentiment. We also believe the company may struggle to meet its capital investment funding needs and liquidity covenant over the next 12 months. At this point, we have not factored in any potential additional capital inflows from SoftBank other than the $1.7 billion due in 2020 ($1.5 billion due in April and $200 million due in the second half of 2020). Underpinning these uncertainties are challenging market conditions including a heightened risk of recession in the U.S., Brexit worries, and a slowdown of the Chinese economy (both London and China are major markets for The We Company).

The negative outlook is indicative of the uncertainty tied to The We Company's weakening liquidity position and access to capital, following poor reception to its IPO related to scrutiny of corporate leadership and governance practices. It also reflects the risk the company will struggle to fund its capital spending needs absent additional financing, the pivot in corporate leadership, and increased uncertainty about its future direction.

We could downgrade WeWork over the next six to 12 months if the company struggles to secure additional financing to support its operating and growth needs, causing its cash position to decline below the $500 million required liquidity covenant. Other potential avenues for a downgrade include significant operational disruptions precipitated by sharp declines in occupancy levels, loss of key talent, or a decrease in landlord confidence and the ability to secure favorable lease terms.

We could revise the outlook to stable over the next 12 months if the company is able to demonstrate the ability to obtain sufficient capital to adequately support its growth investment, operating, and covenant compliance needs over the next 12 to 18 months. The most likely path toward stabilization would occur upon external infusion of equity capital, combined with a reduction in footprint expansion, and thereby capital conservation. We could also consider a return to a stable outlook if the company enacted and demonstrated positive momentum toward changes in its business plan that would allow them to better manage costs and accelerate the timeline to profitability.

Related Criteria

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

Primary Credit Analyst:Tatiana Kleiman, New York (1) 212-438-4872;
tatiana.kleiman@spglobal.com
Secondary Contacts:Ana Lai, CFA, New York (1) 212-438-6895;
ana.lai@spglobal.com
Kenny K Tang, New York (1) 212-438-3338;
kenny.tang@spglobal.com

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