Drying Up Funding: US WeWork Files for Bankruptcy Amid Management Struggles

WeWork, the US office-sharing company once hailed as a myth of the sharing economy, is set to file for bankruptcy due to financial difficulties and worsening management conditions.

On the 31st (local time), major foreign media including The Wall Street Journal (WSJ) reported, citing sources, that WeWork plans to file for bankruptcy protection under Chapter 11 of the US Bankruptcy Code as early as next week in a bankruptcy court in New Jersey.

According to documents submitted to the US regulatory authority, the Securities and Exchange Commission (SEC), WeWork failed to repay $95 million in debt last month and agreed with creditors on a grace period for debt repayment. However, if it fails to secure funding within the 7-day period, bankruptcy will be unavoidable.

WeWork’s business model, which generates profits by leasing entire commercial buildings or some floors and subleasing them on a monthly basis, thrived during the ultra-low interest rate era but faced backlash from reckless business expansion and excessive borrowing amid the COVID-19 pandemic and rising interest rates. Since then, it has attempted debt restructuring by terminating or renegotiating leases for offices with high rental fees, but negotiations with creditors have not been successful.

[Image source=AP Yonhap News]

As a result, cash reserves have been depleted, and accumulated deficits continued due to increased interest repayment burdens from high interest rates. WeWork recorded a net loss of $2.3 billion last year and an additional loss of $700 million in the first half of this year alone. As of the end of the first half of this year, WeWork’s total long-term debt reached $2.9 billion, and liabilities from long-term real estate leases exceeded $13 billion.

Foreign media evaluated, "Although it seemed to have laid the groundwork for recovery through external capital injections such as SoftBank’s acquisition of management rights, the spread of remote work due to the COVID-19 pandemic and prolonged high interest rates increased borrowing costs, delivering a direct blow to the business model." Due to cash shortages and worsening profitability, the company’s valuation, which once reached as high as $47 billion (about 64 trillion KRW), shrank to $12.028 million as of the closing price on this day.

Founded in New York in 2010, WeWork grew rapidly alongside the sharing economy boom with companies like Uber and Airbnb, but it repeatedly fell due to poor management practices, including accounting methods that distorted profitability. During the 2019 IPO process, co-founder Adam Neumann resigned in disgrace amid embezzlement controversies. As financial difficulties and mass layoffs due to business contraction continued, SoftBank became the largest shareholder (with an 80% stake) through an emergency capital injection of $9.6 billion. Subsequently, WeWork entered the stock market indirectly through a merger with a SPAC (Special Purpose Acquisition Company), but performance and financial crises have persisted.

This content was produced with the assistance of AI translation services.