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WeWork May Sell a Lot of Junk Bonds Just Like Netflix: Executive

The co-working company plans to rely on junk bonds for funding in the near term.

(Bloomberg)—While WeWork is aiming for investment-grade status eventually, the office-rental company plans to rely on junk bonds for funding for the foreseeable future, a WeWork executive said in a meeting with analysts.

WeWork’s credit strategy would be similar to that used by cable companies and video streaming giant Netflix Inc., the unnamed finance executive said in the meeting this month, according to a person familiar with the matter, who asked to not be identified because the meeting was private.

WeWork’s goal is to have constant access to the capital markets at favorable rates for funding that it thinks of as recurring cash, the executive said.

A representative for WeWork declined to comment.

The comments offer previously undisclosed insight into WeWork’s credit strategy as it prepares to start meeting with investors as soon as this week for its IPO roadshow. WeWork has lined up a $6 billion credit line that is contingent on it raising at least $3 billion in its IPO, according to the offering prospectus by its parent, the We Co.

WeWork -- unprofitable, with about $1.3 billion in long-term debt -- has a corporate credit rating of "B" from both Fitch Ratings Inc. and S&P Global Ratings, two of the main bond graders. That’s several steps below investment-grade. Moody’s Investors Service dropped its ratings of the company last year.

"Its rapidly growing footprint burns cash, so traditional credit metrics will view the company poorly," said Arnold Kakuda, a senior credit analyst with Bloomberg Intelligence. "WeWork would need to exhibit stable profits, before it can be seriously considered to be an investment-grade company."

WeWork’s plan to put liquidity first comes comes amid healthy investor demand for junk bonds, which have rallied following the U.S. Federal Reserve’s first interest rate cut in more than a decade. Lower-rated companies are capitalizing on the trend by selling new securities.

Netflix returned to the junk-bond market this year by issuing $2 billion to pay for new content amid intense competition from Walt Disney Co. and AT&T Inc.

The executive who spoke to analysts said that WeWork could also explore whole-business securitizations, or practice of pledging royalties, fees, intellectual property and other key assets as collateral, the person familiar with the presentation said. Those types of bonds are becoming more popular. They may enable companies with riskier ratings to improve their credit by cutting financing costs and issuing higher-quality bonds.

WeWork has locations with solid-cash flow that could potentially be used in a whole-business bond offering, the executive said. The company is working with ratings agencies to help them understand those types of securities, the executive said.

WeWork, given its business model, is also comfortable managing debt and has spent a lot of time thinking it through, the executive said. Decisions about potential offerings will also factor in the size of its market capitalization, cash-flow generation and earnings before interest, taxes, depreciation and amortization, the executive said.

--With assistance from Claire Boston.

To contact the reporters on this story: Gillian Tan in New York at [email protected];

Liana Baker in New York at [email protected].

To contact the editors responsible for this story: Daniel Hauck at [email protected];

Alan Goldstein at [email protected]

Matthew Monks, Michael Hytha

© 2019 Bloomberg L.P.

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