SoftBank has sold off $550m worth of WeWork debts which the conglomerate gave to the loss-making firm when it faced a liquidity crisis in 2019.
The deal was to sell these bonds at a discount to attract investors. SoftBank sold off the debts that carried a 5% coupon and matured by 2025 July, roughly 86 cents in dollars.
The yields move inversely to prices as the low price pushed the yield on the bond up to 9.75%. This is above the yield of WeWork’s existing debts. This underscored the lacklustre reception for the securities.
The company was facing the fallout of its IPO, which the executives had warned that would bring in adverse effects for the company. Then WeWork ventured in with an aid package of $2.2bn. The $550m debt was part of this package.
The reason why the conglomerate jumped in for rescue is that its founder Masayoshi Son invested huge amounts in it. When the venture went into crisis and the value fell, the conglomerate suffered huge losses.
This is why SoftBank stepped in to help WeWork, by providing capital in the form of new debt and credit lines.
Through a merger with a shell company, the conglomerate finalized the long-awaited floatation by listing it on NYSE in October. The deal brought in a total of $1.3bn for the group.
WeWork, the commercial real estate company that provides workspaces, recently saw a slight hike in occupancy. But analysts say that it is not enough to break away from the crisis. But the company is optimistic about its future.
The deal came at a time when the financial players are preparing for the end of the year. But the market never seems to sleep as it is awake with the new arrival of the video game platform Skillz, which is coming with the highest interest rate.
This sale has placed pressure over the debts of WeWork, whose bond is maturing in 2025. The coupon of 7.875% has fallen from 98 cents in early December, hitting 95 cents on Thursday with the yield going from 8.6% to 9.6%.
According to Fitch analyst Kevin McNeil, a large deal of uncertainty surrounds the company and the office market sector because of the pandemic. As a result, they graded it triple C minus, which means it is one degree over default.
They assess that the company has enough money after the earlier equity raising to run the company. But if the sector seems to go on like this, the company would require additional liquidity sources.