WeWork cut deeper into junk territory
S&P Global Ratings cut WeWork’s credit rating deeper into junk territory amid concerns it won’t be able to meet its growth plans.
The credit rating agency on Thursday lowered WeWork’s rating one notch to B- and assigned a negative outlook, saying “heightened risk of recession” could impact its liquidity position and access to capital.
“The downgrade reflects heightened uncertainty around The We Company's ability to raise capital to support aggressive growth and the pressure this places on liquidity,” S&P analysts said Thursday. “These uncertainties stem from the weak reception of The We Company's IPO, partly related to what we view as subpar governance practices.”
WeWork shelved its initial public offering earlier this month as due to investor concerns over its business model, valuation and governance standards.
On Tuesday, founder Adam Neumann resigned as CEO amid mounting concerns over corporate governance standards, which gave his shares 20 times the voting power of ordinary shareholders’. He remains at the company as non-executive chairman.
“Despite some improvements in governance practices subsequent to the initial filing, it is unclear whether the changes will lift investor sentiment,” S&P said, adding that Thursday’s downgrade does not take into account any additional investments from SoftBank other than the $1.7 billion coming in 2020.
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S&P said its negative outlook is due to the uncertainty around The We Company’s liquidity position and access to capital. It warned that WeWork could be downgraded further if the company is unable to secure additional funding or the company experiences “significant operational disruptions precipitated by sharp declines in occupancy levels, loss of key talent, or a decrease in landlord confidence and the ability to secure favorable lease terms.”