Fitch downgraded the commercial real estate firm from a CC to a C, meaning a default or “default-like” process has already begun.
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Credit rating provider Fitch Ratings has once again downgraded WeWork after the company’s decision not to make $95 million in interest payments that were due last week.
Fitch downgraded the commercial real estate firm from a CC — meaning a default seems probable — to a C, meaning a default or “default-like” process has begun.
WeWork’s solvency has been in question for months, with the announcement last week that it will skip the interest payments sending its stock price tumbling nearly 25 percent to its lowest recorded price.
Fitch cited the firm’s withholding of interest payments as the chief reason for their downgrade, along with WeWork’s liquidity and funding plan and its operating performance.
At the end of the first quarter of 2023 the company had $422 million on hand, and at the end of the second quarter it counted $205 million in cash. The company has exhibited no sign that the cash burn will slow anytime soon, Fitch said.
“Fitch expects the cash burn to persist through 2023, and it is uncertain if improvements will be soon enough to avoid default,” Fitch wrote in a statement.
The company continues to be dragged down by economic conditions, which show no sign of improving, Fitch noted.
“Fitch assumes challenging macro conditions will lead to 2023 revenue being flat and growth of only 2 percent in 2024,” their statement reads. “An important driver of this will be WeWork’s pricing power, which Fitch expects to be an ongoing challenge especially if the broader economy contracts.”
WeWork’s stretch of bad luck intensified this year, as CEO Sandeep Mathrani who had been viewed as one of the company’s last hopes, suddenly left.
A financial filing the company submitted in August cast serious doubt on whether it will continue to exist for much longer.
“Substantial doubt exists about the company’s ability to continue as a going concern,” the filing reads.
In September, the firm announced that it would attempt to renegotiate “nearly all” of its existing leases to more favorable terms.
Years ago, when WeWork was still making its upward climb, many inside and outside of the commercial real estate industry believed the company, helmed by founder Adam Neumann, was the future of the workplace. Predictions suggested that individuals and businesses would choose to occupy WeWork’s locations instead of working from a traditional office building, favoring the company’s sleek designs, communal spaces and perks, such as beer and kombucha, geared toward building community.