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WeWork won interim approval from Judge John Sherwood of the New Jersey Bankruptcy Court for all of its first day motions at a two-hour hearing in Newark this morning. The restructuring plan as contemplated by the RSA sees SoftBank positioning itself to resume control of the company upon emergence through the conversion of a $750 million DIP loan, substantial secured debt, and the retention of its prepetition equity stake.

The proceedings were not without interruption, however. An ad hoc group of landlords, represented by counsel Kelly Drye, unexpectedly sought to depose the company’s CEO David Tolley regarding its organizational structure. The examination was ultimately waived in favor of out-of-courtroom negotiations, which resulted in a revised form of order.

Several other landlords provided comment throughout the hearing, seeking to reserve rights relating to the assignment of leases in the event of rejection by the debtor, which could have significant financial implications.

The most contentious issue to arise was WeWork’s motion to file redacted schedules to protect the identities of its customers. Debtor’s counsel from Kirkland argued that competitors were attempting to poach WeWork’s customers due to the bankruptcy proceedings. In response, the U.S. Trustee argued that if a customer needs to be disclosed on the schedules as a creditor, then everything should be redacted other than the customer’s name. Kirkland pushed to redact entire identities, however, particularly of customers outside of the U.S. The issue is set to be resolved at the second day hearing scheduled for Dec. 6 at 11:00 ET.

Lease negotiations are an integral part of the restructuring plan with at least 69 leases identified by the debtor to be rejected as of the Nov. 6 petition date. Kirkland signaled that additional lease rejections will be considered as the case proceeds according to the debtor’s business judgment.

WeWork is seeking approval of its procedures for the rejection and assumption of leases and the rejection of its initial 69 leases at a hearing scheduled for Nov. 28 at 10:00 ET.

The long-anticipated restructuring plan calls for a majority of secured creditors to convert their claims to equity, eliminating $3 billion of prepetition debt and reorganizing the company on a reduced real estate footprint. SoftBank stepped back into the senior portion of the capital structure by issuing $306 million of first-lien notes in the third quarter, which has since accrued to $345 million, negotiating majority control and potentially circumventing objections to preferential treatment. (Check out LFI’s deep dive analysis of the first day filings and plan here.)

SoftBank’s preferential treatment under the RSA as the debtor’s sole surviving common shareholder may prove to be less significant than initially thought. An overwhelming majority of secured creditors (92%), whose claims are being converted into equity as part of the agreement, have signed onto the RSA, consenting to the structure while partially diluting SoftBank’s ownership.

Rather than seeking DIP financing immediately, the workspace giant has chosen to delay filing a DIP motion. Instead, it is seeking an interim order for the use of cash collateral to gain access to $173 million cash on hand until the DIP approval order is signed. WeWork projects it will have $106 million of cash on hand by the end of December.

The RSA outlines broadly that its DIP financing will create a senior secured $750 million term loan C facility alongside a separate cash collateralized letter of credit facility, with the first $100 million of the DIP loan to be converted/rolled up into the exit facility.

Jennifer Lappe, JD

Evan DuFaux



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