WeWork News About Q3—It's Bad
What WeWork management knew and didn't disclose about dismal Q3 developments; Q3 Results Tell All
14 Nov 2019 11:21
They knew, as I told The New York Times: "Vicki Bryan, chief executive of Bond Angle, a research firm, said WeWork should have told investors during the I.P.O. process that losses were escalating in the third quarter. “They knew the bulk of this and kept the public in the dark,” she said."
...as I warned in The Tide Is Out and WeWork Bondholders Are Naked.
WeWork bonds were seen trading at 76.5 (14.2% ytw; 1252 bps), down roughly 8 points since my last report when I maintained "Sell" and downside risks continue to outweigh nominal upside catalysts.
13 Nov 2019 18:24
WeWork released a woefully insufficient summary of third-quarter earnings, but what is clear is that the company continued to pursue its IPO up to the day the third quarter closed obviously well aware its operating losses were massively higher and materially worse versus results reported with the S-1 filed on August 15, 6 weeks into the quarter. The third-quarter loss swelled to $1.25 billion, nearly 2x the second-quarter loss of $640 million and nearly 3x worse versus the $448 million loss last year.
Yet the company did not pull its IPO until the day the quarter closed on Sept 30 or warn prospective investors that its performance in the third quarter was trending substantially weaker versus trajectories indicated in the S-1. WeWork pulled the exact stunt in April last year when it sold its unregistered bonds, as I warned back in September in Gravity Works As WeWork Doesn't; Now Plan B.
Reported cash also fell further to just $2 billion, which likely still included at least $1 billion in padding as cash it can’t actually spend as I tracked in June results.
These results confirm my concerns about why WeWork’s banks were so spooked they refused to extend further credit as well as how egregious are the company’s public disclosures and financial reporting (see The Tide Is Out and WeWork Bondholders Are Naked). Indeed we also have since learned via subsequent WSJ reporting that the company was fighting to retain its misleading and inadequate disclosures despite strong objections from the SEC even as the IPO was unraveling and ultimately withdrawn.
Also, there is no explanation for why the tender offer still has not been completed a month after the deal terms were negotiated—why the holdup?
Look for more discussion in an upcoming Bond Angle report.
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