WeWork provided Judge John Sherwood with an update on its landlord negotiations and notified the court of its tight liquidity situation during a status conference in the New Jersey Bankruptcy Court today.
The debtor, advised by Kirkland & Ellis, stated that its cash collateral has not been sufficient and that it will need to tap into its letter of credit DIP facility to continue funding operations while it attempts to restructure its debt. With a limited amount of liquidity at its disposal, WeWork said its ability to fund the case for long is in flux.
To quell its liquidity dilemma, WeWork withheld January rents to certain landlords that refused to engage in talks to bring down the monthly payments. With the move, the debtor hopes to bring the landlords to the table to renegotiate rental payments. Overall, the debtor is seeking to slash its rent to $7.5bn.
Nine landlords that refused to negotiate and engage with the debtor agreed to start to work with WeWork upon refusal of January rent. Claims on January rent from the remaining landlords that didn’t work out a deal with the debtor will be discussed before the judge at the end of February
The debtor filed its disclosure statement and chapter 11 plan on Sunday, although the filing lacks crucial details in regards to recoveries for the various debt classes. However, in terms of general unsecured creditors, no recovery is expected, except for the third-lien unsecured noteholders, and only if there are unencumbered assets available. The plan still tees up creditor Softbank to take majority control of the reorganized WeWork.
Kris Hansen from Paul Hastings, as counsel for the UCC, expressed the committee’s concern over the case’s progress. Hansen is still seeking to review a revised business plan, especially given the debtor’s liquidity issues. Hansen also noted concern that the debtor has only assumed seven leases and rejected 94 since filing and is still working to resolve over 400 leases.
WeWork filed for chapter 11 in November with a long-anticipated restructuring plan that calls for a majority of secured creditors to convert their claims to equity, eliminating $3bn of prepetition debt and reorganizing the company on a reduced real estate footprint.
Also during today’s status conference, the debtor said the special committee investigation into events leading to the bankruptcy is underway.
Jennifer Lappe, J.D.
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