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As WeWork grew, Wall Street lent its money and credibility



Banks are fighting for a role in WeWorks' publicly-known debut advertiser

Adam Neumann

with sky-high ratings that would make him a billionaire billionaire. Her loans to the company told a different story.

When

Wells Fargo

& Co. signed a $ 6 billion loan earlier this year. Mr. Neumann said, "If the biggest lender in this country can come to terms with it, everyone should do it."

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Wells Fargo, the fourth-largest US bank, did not begin lending to WeWork until after a senior executive of the bank promised to keep an eye on Mr. Neumann, the persons familiar with the matter said. [1

9659006] The banks had significant doubts about We Co., as the WeWork parent company is called, although they submitted the shares to investors according to interviews and documents reviewed by the Wall Street Journal. The company ran out of cash and was rescued last month by a Japanese conglomerate

SoftBank Group Corp.

in a deal that brought Mr. Neumann on the palm.

The dissolution of WeWork has hit the wallets and reputation of SoftBank and other venture capital investors the hardest, which has enabled the rise of Mr. Neumann and his company. But with its money and credibility, Wall Street has also bolstered the company's rapid growth and image as a super-fast technology company.

WeWorks model – lease offices, equip them with items such as free beer and water enriched with fruit and then sublet them – demanded a steady supply of credit. Landlords demanded bank letters that guaranteed several months in advance rent. These letters could be recycled because the short-term commitments had expired.

JPMorgan was one of the largest lenders to WeWork and to Mr. Neumann, who included CEO James Dimon and the head of asset management

Mary Erdoes,

Their division had been granted by Mr. Neumann among his confidants.

In 2015, JPMorgan headed a group of banks that granted WeWork a $ 650 million loan. Two years later, the company retired for another $ 500 million and Wells Fargo joined the group.

Wells Fargo bankers internally recognized that WeWork's business model was unproven, but agreed to lend US $ 100 million if the company provided cash as security depositors who are familiar with the matter, and one memo checked by the journal.

WeWork would be a profitable customer in Silicon Valley, where Wells Fargo has no strong presence, they argued in the memo. This could also give the bank a stake in WeWork's IPO and future stock sales, which, according to bankers' estimates, could bring in $ 12 million in fees.

An Internal Committee Initially Declined Credit People expressed concerns about the prospects of the company and the style of Mr. Neumann. Wells Fargo's director of real estate Eastdil, Roy March, reassured executives that he was close to Mr. Neumann and would personally look after him, the persons familiar with the situation said.

Perry Pelos,

a top manager from Wells Fargo who was finally deregistered after several appeals, people said. Wells Fargo sold most of Eastdil this year.

This summer, as WeWork was preparing for the IPO, Mr. Neumann told his friends that a new round of financing would "knock" the market, a person familiar with the matter said. He had met with Mr. Dimon and the CEO of Goldman

David Solomon,

People familiar with the talks said:

Bankers at JPMorgan and Goldman meanwhile vied for roles in the company's IPO. They told Mr. Neumann that it could be worth $ 60 billion (JPMorgan) and $ 90 billion (Goldman), according to the persons familiar with the matter. Setting up a loan would help them to get the job.

JPMorgan proposed a $ 6 billion loan, which required WeWork to raise $ 3 billion by the end of the year. The package included a USD 2 billion credit line that could be used to further sign contracts for new space.

Here is a look at the business model of WeWork. Photo: David & # 39; Dee & # 39; Delgado / Bloomberg

Goldman proposed $ 3.65 billion of credit secured by revenue from WeWorks buildings. The agreement would allow WeWork to raise more loans if certain milestones were reached – up to $ 10 billion over time – and the company would not have to go public, some respondents said. WeWork executives wanted more money in advance, they said.

JPMorgan won.

The bank urged other lenders to provide at least $ 750 million apiece for the total of $ 6 billion in negotiations. Some bankers feared that JPMorgan's initial terms were too lenient and required WeWork to provide more cash to cover the loan.

After all, the $ 2 billion line was 100% collateral, which meant WeWork had to pledge a dollar in cash for every dollar borrowed, people said. Goldman, Wells Fargo and six other major banks agreed to participate.

The lenders would divide up about $ 250 million in advance, which, according to those familiar with the business, represents a large sum for a low-risk agreement. One day after its completion, WeWork announced that JPMorgan and Goldman had taken the lead in the IPO. The other banks got junior roles.

The flotation went into trouble almost immediately after submission of the documents in August. Investors failed due to the growing losses of WeWork and unusual financial arrangements between the company and Mr. Neumann. Bankers offered shares at a lower price; Investors still have not bitten.

The company repelled Mr. Neumann as CEO and announced the flotation in September that killed the loan agreement. WeWork, which suddenly had a dangerous liquidity shortage, found that the banks were no longer ready to recover.

JPMorgan was looking for a $ 5 billion lifeline.

This time, the bank refused to lend money on its own loans without assessing investor demand, people familiar with the matter said. It eventually offered the full $ 5 billion.

WeWork instead took the money from SoftBank.

Mr. In a television interview this week, Dimon defended his bank's business with WeWork.

"We helped WeWork to a fair conclusion," said Dimon. "Now it has a chance of success."

Write to David Benoit at [email protected], Maureen Farrell at [email protected], and Liz Hoffman at [email protected]

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