https://www.barrons.com/articles/wework-suffers-a-credit-downgrade-after-ipo-delay-management-shakeup-51569537096
WeWork Suffers a Credit Downgrade After IPO Delay, Management Shakeup
Alexandra Scaggs
Sept. 26, 2019 6:31 pm ET
Scott Olson/Getty Images
S&P Ratings has downgraded WeWork's credit, one week after its parent company delayed its initial public offering and two days after CEO Adam Neumann stepped down.
The credit analysts downgraded WeWork's credit rating by one notch, to B- from B, and said the company has "less than adequate" liquidity. Without an infusion of cash—whether from an IPO or a private investment—WeWork could run out of cash by early next year, the analysts wrote.
They also questioned the company's new management and governance structure after Neumann's departure.
The "weak governance practices and behaviors under Neumann's tenure have called into question the effectiveness and independence of the board," the analysts wrote. But "at this time, we do not believe there have been any changes to the board that would provide more effective oversight."
We Co., WeWork's parent, didn't immediately respond to a request for comment.
WeWork's new rating is closer to those on companies in default than it is to investment-grade ones. (A B- rating is five tiers above default and six tiers below investment grade.)
We Co. has $2.5 billion of cash on its balance sheet, according to its IPO filing. Excluding its proceeds from financing, the company burned through more than that in the six months ended June 30, the filing shows.
If We Co. completes its IPO by the end of the year, it will get access to a $6 billion line of credit from banks.
But "without further capital support or a sharp reduction in growth plans, the company could run out of cash and breach covenants by early 2020," S&P writes.
Write to Alexandra Scaggs at alexandra.scaggs@barrons.com
S&P Ratings has downgraded WeWork's credit, one week after its parent company delayed its initial public offering and two days after CEO Adam Neumann stepped down.