In a recent financial move, SoftBank wired $1.5 billion to Goldman Sachs and other lenders just days before WeWork’s bankruptcy filing, marking a significant chapter in one of the most challenging venture capital investments for the Japanese conglomerate.
This latest payment brings SoftBank’s total commitment to WeWork to over $16 billion since its initial investment in 2017, as revealed by Financial Times analyses of filings.
Under the leadership of CEO Masayoshi Son, SoftBank played a pivotal role, along with investors in its Vision Fund, in financing WeWork’s ascent. However, the bankruptcy of WeWork has dealt a severe blow to SoftBank’s substantial investment, wiping out a significant portion.
The October 31 payment to lenders, predominantly led by Goldman Sachs, was tied to a “letter of credit” that SoftBank helped WeWork secure in December 2019. This financial maneuver was in response to challenges faced by WeWork at the time, including the departure of co-founder Adam Neumann and the depletion of investor capital due to ambitious expansion plans.
In essence, SoftBank co-signed the $1.75 billion letter of credit, acting as an obligor alongside WeWork to address concerns of risk management committees on Wall Street.
SoftBank executives believed that guaranteeing the letter of credit was the best option to salvage their existing equity investment, which had already exceeded $9 billion by that point.
WeWork’s critical $6 billion loan, tied to a successful initial public offering (IPO), slipped away when the listing was abandoned. This unexpected turn left WeWork facing the looming threat of bankruptcy, underscoring the substantial deflation of the company’s prospects.
Unlike traditional corporate loans, letters of credit involve banks guaranteeing future payments to third parties, even if the company cannot provide the funds. This arrangement was crucial for WeWork after abandoning its IPO, as landlords sought commitments to ensure eventual payment, even in challenging circumstances.
With a majority of the letters of credit still outstanding, SoftBank’s $1.5 billion payment last week covered potential future payment requests from landlords. Approximately $809 million of this amount could be recoverable if landlords do not initiate payment requests, providing a small avenue for potential recovery.
While WeWork’s bankruptcy has severely impacted SoftBank’s investment, the Japanese conglomerate has the opportunity to recover a portion of its losses by converting some of its existing debt into equity in the reorganized company.
SoftBank, WeWork, and Goldman Sachs declined to comment on the matter. Investors are now eagerly awaiting SoftBank’s upcoming earnings report, expected to provide details on the losses associated with the WeWork investment.
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