WeWork Seeks $6 Billion Financing, Contingent on IPO Success

(Bloomberg) -- WeWork Cos. is setting up $6 billion in financing to pursue its global ambitions, but there's an unusual catch: It must first succeed in its initial public offering next month.

The company has been meeting with analysts this week, outlining its business and plans for expansion as it prepares for a stock-market debut. Behind the scenes, the firm is seeking to borrow in two ways: a $2 billion letter-of-credit facility and a $4 billion delayed-draw term loan, people with knowledge of the matter said, asking not to be named because terms are private.

But in a twist, banks will have to make good on their commitments only if at least $3 billion is raised in the offering, upping the stakes for the IPO. The larger facility can be drawn down beginning in September, and again in August 2020 and March 2021, if WeWork meets certain performance targets, one of the people said.

The New York-based venture, which rents furnished office space to companies and freelancers, has been looking for ways to fund its expansion around the world, potentially investing in a broad array of businesses and properties, such as apartments and schools. Pressure on the company mounted after Japan's SoftBank Group Corp. backed off a plan late last year to pump $16 billion of equity into the startup.

The new financing round may give WeWork more discretion when setting the size of its IPO, which Bloomberg reported last week may raise $3.5 billion in September.

Read more: WeWork is said to target September for $3.5 Billion IPO

JPMorgan Chase & Co.'s representatives have told rivals it's poised to commit as much as $800 million to the two facilities, the people said. Some potential lenders were asked to commit $750 million by this week, while others have until mid-August to solidify commitments of $250 million to $500 million. If the company receives pledges in excess of $6 billion, as it expects, it will probably scale down how much it draws from each lender accordingly, according to one of the people.

Representatives for WeWork and JPMorgan declined to comment.

Swag for Analysts

Equity analysts who may soon issue recommendations to buy, hold or sell WeWork's stock were invited to its location at 85 Broad St. in Manhattan, once the headquarters of Goldman Sachs Group Inc. Trading a T-shirt for a white button-down shirt and dark pants, co-founder and Chief Executive Officer Adam Neumann told the audience about his company's early days. He went on to explain how it solidified relationships with major clients like Microsoft Corp. and what drove its decision to court others such as big banks, Facebook Inc. and Amazon.com Inc.

WeWork disclosed metrics to analysts, including that its year-over-year run-rate revenue growth is 105%, based on $3 billion in run-rate revenue, according to people with knowledge of the matter. The company told analysts its net member retention rate is 121%, exceeding 100% because businesses already in its membership base are growing. Its lifetime value-to-customer acquisition cost ratio is 4.2 times; that exceeds the 3-times ratio that venture investing firm Andreessen Horowitz has said is a good sign a business model is working. Enterprise clients account for 41% of WeWork's membership base. These include BlackRock, Adidas, Citigroup and Salesforce, according to that unit's website.

WeWork has moved beyond office space into such ventures as WeLive housing, WeGrow schools and Rise by We, a wellness concept. Neumann repeatedly compared WeWork with Amazon, noting the online retail giant began selling books before expanding into just about everything else. He later joked that he wants to stop using that analogy -- which has become something of a cliche for companies looking to raise money. The event wound down with avocado toast, quinoa and beer.

In a possible sign of which banks are closest to WeWork, front-row seats were reserved for analysts from JPMorgan and Goldman Sachs. Attendees were offered swag, including tote bags and umbrellas emblazoned with “Do What You Love,” as well as coffee cups and T-shirts bearing the company's “WE” logo.

Lending Fees

The new term loan may be priced at Libor plus 475 basis points and deemed pari passu -- or equivalent in seniority -- to WeWork's outstanding bonds, another person said. The loan is highly structured and secured against cash and leases.

Banks are expected to receive upfront fees equal to about 3% of their final commitment.

Altogether, fees earned from lending to WeWork are expected to exceed the bounty banks will reap for handling its IPO. The fees being discussed for the stock sale range from 2.5% to 3%. That's higher than the approximately 1.3% paid by Uber Technologies Inc. for its debut in May, according to data compiled by Bloomberg.

--With assistance from Michelle F. Davis, Ellen Huet and Eric Newcomer.

To contact the reporter on this story: Gillian Tan in New York at gtan129@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net, David Scheer, Michael Hytha

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