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WeWork bonds scrape new lows on report of CEO leaseback arrangements

WeWork's debut bond issue of 7.875% notes due 2025 continued to new lows today after The Wall Street Journal reported that the company's CEO had reaped millions of dollars from buying properties and leasing them back to his company, raising concerns among investors over potential conflicts of interest.

The 7.875% bullet issue, which WeWork printed at par in April last year, traded today from 86.5–87, down 1.5–2 points on the day, extending a decline from 90 one week ago. The bonds had firmed up last week on news of SoftBank's ongoing — if lessening — investments in the business, lifting trading levels from a previous low of 87.625 on Jan. 7.

The bond price tumbled from par soon after the new-issue placement last spring. Investors questioned divergent initial ratings assignments (B+/Caa1/BB–), high lease debt, and unusual metrics in the bond prospectus, including "community-adjusted EBITDA" (a controversial pro forma earnings metric that excludes some costs associated with rapid expansion efforts), and language surrounding the extent of subsidiary guarantee features pertaining to the unsecured notes.

Trades in the $702 million issue briefly rallied above par in early August on an initial $1 billion investment from SoftBank to stem liquidity erosion over the first half of last year. However, the notes shed three points from the highs over the balance of that month.

The WSJ today reported that CEO Adam Neumann, who holds a controlling voting stake in the company, was a landlord for multiple properties that had been leased back to WeWork, which in turn subleases them to small businesses, entrepreneurs, and others as shared workspaces. Neumann declined to comment for the article, but a WeWork spokesperson told the paper that all such arrangements were made with the approval of its board of directors or an independent committee, and subsequently disclosed to investors.

WeWork last week announced that it would rebrand itself as The We Company, comprising the WeWork, WeLive, and WeGrow business initiatives.