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SoftBank paid $1.5bn to WeWork lenders together with Goldman Sachs days earlier than chapter

SoftBank paid $1.5bn to WeWork lenders together with Goldman Sachs days earlier than chapter

2023-11-08 10:54:58

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SoftBank was compelled to wire $1.5bn to Goldman Sachs and different lenders days earlier than WeWork filed for chapter, as the price of one of many worst enterprise capital investments in historical past has continued to mount for the Japanese group.

The fee takes the whole SoftBank has dedicated to WeWork to greater than $16bn since its preliminary funding in 2017, filings analysed by the Monetary Occasions present.

Underneath chief government Masayoshi Son, SoftBank and traders in its Imaginative and prescient Fund bankrolled WeWork’s ascent, finishing a unprecedented financial switch to landlords in addition to to workers and different traders who offered their shares to the Japanese conglomerate.

WeWork’s bankruptcy has worn out most of SoftBank’s funding, though the Japanese group could have an opportunity to get better a portion of its losses because it converts a few of its current debt into fairness within the reorganised firm.

The fee on October 31 to lenders led by Goldman was tied to a “letter of credit score” SoftBank helped WeWork safe in December 2019, the corporate’s bankruptcy filing showed. The corporate on the time was coping with the fallout of the departure of Adam Neumann, its co-founder and former chief government, and the very fact it had burnt via billions of {dollars} in investor capital to fund its over-exuberant enlargement.

SoftBank in impact co-signed the $1.75bn letter of credit score, performing as an obligor alongside WeWork to win over cautious danger administration committees on Wall Avenue.

SoftBank chief executive Masayoshi Son at an event in Tokyo, Japan on October 4 2023
SoftBank chief Masayoshi Son tried to tear up a debt deal in 2020 however was sued by WeWork’s board and its former head to implement it © Toru Hanai/Bloomberg

SoftBank executives believed guaranteeing the letter of credit score was the best choice to maintain their current fairness funding alive on the time: it had already invested greater than $9bn via its personal steadiness sheet and the Imaginative and prescient Fund by that time.

A vital $6bn mortgage that WeWork wanted and had primarily based its development plans on had been tethered to a profitable preliminary public providing. When the itemizing was aborted, the mortgage slipped from its fingers, making the corporate’s funds perilous. Executives have been out of the blue staring down the opportunity of chapter in a twist that underscored how far the corporate’s prospects had deflated.

Letters of credit score differ barely from conventional company loans, with the banks guaranteeing {that a} future fee shall be made to a third-party even when the corporate can not provide you with the funds.

That was vital to WeWork after it deserted its IPO, with landlords pushing for the commitments to verify they might ultimately be paid if one thing went improper on the co-working large.

Given {that a} majority of the letters of credit score stay excellent — and normally achieve this for a yr from their issuance — roughly $809mn of the $1.5bn SoftBank wired final week was to cowl fee requests from landlords that haven’t but been made. It’s a small portion that may very well be recovered if landlords for some motive don’t faucet the banks for fee.

“If these letters get drawn then the banks are entitled to repay themselves for the draw and in the event that they’re not the money is returned,” one individual concerned within the matter stated.

WeWork, SoftBank and Goldman declined to remark.

The $1.75bn deal led by Goldman in 2019, in addition to SoftBank’s resolution to pump roughly $3.7bn into the corporate via debt and fairness, helped allay fears that WeWork would instantly exit of enterprise initially of the last decade.

These investments wouldn’t be SoftBank’s final, at the same time as Son pushed his team to tear up an settlement that will have led to the Japanese group shopping for $3bn of shares in WeWork from insiders and supply it an additional $1.1bn of recent debt financing in 2020.

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Whereas Son and SoftBank have been capable of again out of the debt deal, Neumann and WeWork’s board sued to implement the tender. The events ultimately reached a settlement that led to SoftBank shopping for $1.5bn price of shares in 2021, together with $578mn from an funding car managed by Neumann.

Through the years SoftBank’s delayed draw loans and co-signed letters of credit score allowed WeWork to try a number of reboots of its enterprise. In 2021, WeWork merged with a clean cheque firm to go public, with the fairness of the corporate valued at $9bn. However that determine slid as insiders offered out and WeWork’s personal troubles stored mounting, with the pandemic and distant work miserable occupancy charges.

As just lately as this March, groups at SoftBank, WeWork and a gaggle of different lenders believed they’d provide you with a plan to place WeWork on a sustainable footing.

SoftBank agreed to forgive some WeWork debt and swap it for brand spanking new shares within the group, hoping that this would scale back WeWork’s outlays on curiosity bills at a time when the Federal Reserve had raised charges to their highest degree in 22 years. SoftBank even agreed to fund $300mn of a brand new mortgage in trade for compensation on a portion of the debt it had earlier supplied WeWork.

Different former SoftBank executives have discovered it troublesome to steer clear of WeWork after their years of entanglement. Rajeev Misra, who ran the corporate’s $100bn Imaginative and prescient Fund and aggressively pursued investments in unprofitable start-ups, joined within the restructuring deal this yr.

His One Funding Administration fund supplied $470mn of the high-interest letter of credit score banks had prolonged the corporate, placing him side-by-side with Goldman, Mizuho, Deutsche Financial institution, Natixis, Citi, Financial institution of America, Société Générale and JPMorgan Chase.

Buyers are actually ready for SoftBank to report earnings this week, when it’s anticipated to set out particulars of its losses linked to WeWork.

Further reporting by Sujeet Indap

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