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WeWork Bonds Drop Below Par for First Time Since IPO Filing

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Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#31

Post by chadash »

whatshisface wrote: post #23
chadash wrote: post #15

Earlier quoted context omitted.

German bond yields are currently negative. That means that you pay them more than $100 for every $100 you get back. See https://www.bloomberg.com/markets/rates-bonds/government-bon...

There is actually an important detail here: that's €101, not $101. If you want to transact in dollars there would be no reason not to deal with the US Treasury which is even safer than the German government (Germany can't print Euros to fulfill its debt obligations).

Fine, so take Japan who also has negative yields on short term bonds and can print their own currency.

And the US Treasury can print money, but it's got it's own issues with a congress who occasionally has members who grandstand and threaten to default on debts. Meanwhile, Germany runs a surplus budget. I'm not saying that US Bonds aren't extremely safe, but it's hard to know if German bonds are really less safe. The market seems to consider them extremely safe. The biggest risk with German bonds for a buyer who transacts in dollars is currency fluctuation

But I agree with your sentiment with regard to the original comment you responded to (which seems to have been edited now).

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#32

Post by [deleted] »

linuxftw wrote: post #6
bhouston wrote: post #3

It does not seem to be a viable business so this makes sense. I think that there was some type of hope that access to IPO funding will allow it to continue to search for a viable business model. This path to possible success seems to be dwindling. If WeWork needs to have a self-sustaining business model in the near term, it could quickly collapse. I am not sure but will SoftBank and other wealthy investors continue t…

> It does not seem to be a viable business so this makes sense. Many businesses that IPO aren't viable, the problem is when the general public figures that out. For instance, snap chat. In no way a viable business, but has plenty of investors thanks to the wall street scam of institutional investors (401ks, etc) buying entire sectors of an exchange. It's a nice scheme to ensure you bail out your 'venture capitalist'…

[deleted]

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#33

Post by fullshark »

duxup wrote: post #4

It just seems like WeWork took an existing business model of renting office space, went all VC and gathered a bunch of money and sky high evaluation (toss in some creepy insider dealing) ... and ... that's it. I know there were some theories on cornering the market, or getting some sort of huge buy in / contracts with companies hiring remote workers but for the most part there's plenty of office space (at least in my…

And it worked brilliantly

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#34

Post by zpwm »

whatshisface wrote: post #30
zpwm wrote: post #27

Earlier quoted context omitted.

US Treasury 30 year bonds are currently priced over $102.... Calling a bond an IOU doesn't really make sense because you neglect the coupon payments (annual interest). So even though you're paying over $100 to get paid back a $100 principal the yield is still positive because of those coupon payments. Negative yield bonds also exist and are bought for various reasons. "There isn't an institution in the world that cou…

That's a good point, but I think you can get one-year bonds with an annual coupon: that means you get one payment a year from now. So bonds in general aren't IOUs, but there is at least one bond that works like one.

You are right that would be an example of a bond/bill with a 0% coupon rate. There are still weird negative interest rate conditions where it makes sense to buy an IOU for more than you get back (not that I understand those conditions :) )

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#35

Post by SpicyLemonZest »

duxup wrote: post #10
swampthinker wrote: post #7

Earlier quoted context omitted.

Growth. Most initial investors have already exited the company thanks to Softbank.

I get the "hey Softbank is in it" kinda thing, not smart, but I get it. Growth I don't get. Did they feel they were buying up a lot of undervalued properties and were going to dramatically increase in value somehow? Office space seems like a mature market and it's not like if I own 3 buildings vs 1000 that there is that much efficiency that growth would get me.

There's not as much efficiency as with a cloud provider or something. But there's a level of scale where people switch from thinking "I could use a bit of temporary office space, I wonder where I can get it" to "where's the closest WeWork". I buy that there's some value there.

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#36

Post by JumpCrisscross »

duxup wrote: post #4

It just seems like WeWork took an existing business model of renting office space, went all VC and gathered a bunch of money and sky high evaluation (toss in some creepy insider dealing) ... and ... that's it. I know there were some theories on cornering the market, or getting some sort of huge buy in / contracts with companies hiring remote workers but for the most part there's plenty of office space (at least in my…

> It just seems like WeWork took an existing business model of renting office space, went all VC and gathered a bunch of money and sky high evaluation (toss in some creepy insider dealing) ... and ... that's it

The nutty thing is WeWork could have worked as a well-executed business. The core thesis, that companies of all sizes appreciate the flexibility of spinning up and down remote workplaces as a variable (versus fixed) cost has legs.

There is a borrowing-short-buying-long aspect to their business, but that could be managed through a combination of first-loss guarantees and sandboxed leases (on both sides).

The problem is the CEO, enabled by Masa Son, showed zero discipline on any level. Nepotism, self dealing, lack of focus, cost inflation...about the only thing they did right, it seems, was expansively disclose all of this to their investors.

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#37

Post by cs702 »

It's remarkably easy to make fun of WeWork, given the company's high-as-a-kite ambitions, its largely conjectural business model, its dependence on fresh capital for survival, its charismatic CEO’s new-age antics, and its disregard for conventional norms of ethical corporate behavior.[a]

But if the IPO of a company as prominent as WeWork fails and the company is unable to raise the fresh capital it needs to stay afloat, we should view that as a warning sign that capital markets are shifting from "grow at all costs" to "show me the profits."

The last time we had such a shift, in 2000, it was sudden and cruel. Many fast-growing companies found themselves unable to raise capital. Down-rounds became common. There was a wave of failures. The startup ecosystem went through a long, cold winter.[b]

If you are at a money-burning startup, please make sure your company has a viable plan for survival in the event that access to fresh capital is suddenly cut off.[c]

--

[a] https://twitter.com/shiraovide/status/1161601877517246464

[b] https://en.wikipedia.org/wiki/Dot-com_bubble#Aftermath

[c] Here's a good first-hand account of a fast-growing, money-burning company that managed to survive the post-2000 environment, while most of its competitors went bankrupt: https://a16z.com/2010/03/17/the-case-for-the-fat-startup/

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#38

Post by outside1234 »

whatshisface wrote: post #12
code4tee wrote: post #8

This IPO story is struggling. There have been several recent examples of public confidence in the business model collapsing post IPO, but the WSJ and others are reporting on this so heavily as it looks like we’re now seeing public confidence starting to fall apart before the IPO of an ultra-unicorn. Get your popcorn ready. Someone might buy these bonds at their deflated prices because WeWork still needs to pay intere…

There isn't an institution in the world that could sell an IOU $100 for $100, not even the US Treasury. For example, if you bought a 1-year dated IOU for $100 from the US Treasury today, it would cost only $98.30. Edit: this comment was written in response to the parent before it was edited to remove any trace of what was being replied to.

This is true for "zeros" which are bonds that pay no interest (eg. treasury notes) but instead pay a premium to the issuing price on maturity but not for bonds in general, which is what WeWork is issuing here.

When the US Treasury (or WeWork) sells a bond at $100 (and it almost always does), it is based on a face interest rate (say 3%). This interest is fixed (eg. the bond will always pay $3).

If prevailing interest rates rise to 4%, then the price of that bond will drop to a price such that the interest the bond pays ($3 per $100) ends up being a 4% yield.

It also works in the opposite direction and this is how you end up with bond prices above $100. The price has to swing higher for that $3 per $100 face value to have a yield less than 3%.

As an aside, this is also why longer term bonds are riskier than shorter term bonds, you can lose significant amounts of money if interest rates shift higher over 10-15 year timeframes because the market price of the bond will have to drop to make it competitive in secondary markets.

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#39

Post by wastedhours »

chadash wrote: post #14
duxup wrote: post #4

It just seems like WeWork took an existing business model of renting office space, went all VC and gathered a bunch of money and sky high evaluation (toss in some creepy insider dealing) ... and ... that's it. I know there were some theories on cornering the market, or getting some sort of huge buy in / contracts with companies hiring remote workers but for the most part there's plenty of office space (at least in my…

> It just seems like WeWork took an existing business model of renting office space, went all VC and gathered a bunch of money and sky high evaluation (toss in some creepy insider dealing) ... and ... that's it. That is basically what they did, but they also marketed it really well and made the process seamless. Everyone points to Regus as an example of a company that already existed in WeWork's space, but as far as…

I heard about Regus years before I'd ever heard of WeWork, however, all of the other new players in the space (barely a week goes by without seeing an ad for a new building in London with flexible offices and coworking) have only really gained visibility since.

Have a feeling the newer, smaller players with more limited portfolios (and exposure) might survive better.

Re: WeWork Bonds Drop Below Par for First Time Since IPO Filing

#40

Post by mason55 »

duxup wrote: post #5
bhouston wrote: post #3

It does not seem to be a viable business so this makes sense. I think that there was some type of hope that access to IPO funding will allow it to continue to search for a viable business model. This path to possible success seems to be dwindling. If WeWork needs to have a self-sustaining business model in the near term, it could quickly collapse. I am not sure but will SoftBank and other wealthy investors continue t…

I wonder what they sold their initial investors on? I've heard a lot of theories (cornering the market, the future of remote work) but I don't quite get what WeWork was selling folks on when it came to investing and evaluations that were so high in the first place.

My guess is that initially they focused on a market that was underserved by tech (short-term real estate). That by itself is probably enough to get some initial funding.

Then you show that you're actually executing, at least as far as being able to grow and manage a real business with real revenues, which can easily get you another round.

From there they did two things. The first was to start to securitize the business. You can see this with things like their ARK spinoff, which allowed them to start raising money from real estate investors. Sure, real estate is a slow growth business, but it's backed by real assets, and it allowed them to start pitching to a new kind of investor while they left the equity investors in the original WeWork.

The second thing was what you mentioned, their pivot to "cornering the market". If you view VC investing, and especially SoftBank, as an attempt to find businesses that are going to eat the world with software, then you can see where WeWork's seemingly random pivot to "We" came from. You pitch the business is a fully vertically-integrated lifestyle where people live, work and send their kids to school. The potential returns on something like that would be insane, so if you can sell even a 1% chance of success you can see how it would be alluring.

It's also possible that "eat the world" was the pitch all along. I could see a world where Adam Neumann was smart enough to see the wholly integrated We as the end game from the beginning and pitch the real estate stuff as a path to getting there. The revenue and growth would be more predictable than something like a software product. The losses would obviously be more predictable too but predictable losses with a clear path to growth might not be such a bad thing if your end goal has a necessary condition of "be as big as possible".

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