This article was written by Julie Chien, IPO/M&A Data Analyst, Vanessa Chan, Loans Data Analyst, and Moeka Nakamura, Structured Products Data Analyst at Bloomberg.
Background
WeWork Inc.’s bankruptcy, 2023’s second biggest in the US, looks set to deal a fresh blow to some of its mortgage debt holders as the list of its insolvent subsidiaries grows longer.
Issue
About 430 subsidiaries filed for bankruptcy as of Nov. 9, with WeWork properties from New York to London hit. Prudential Financial Inc., Doubleline Capital LP, FMR LLC, Allianz SE, BlackRock Inc. and Metlife Investment Management are among investors who hold $27.6 billion of commercial mortgage-backed securities linked to the bankrupt office sharing company. Higher-rated CMBS tranches exposed to WeWork will be more secure than subordinated ones.
The disruption wrought by Covid-19 undermined WeWork’s business model, which centered around signing multiyear office leases and subleasing space to small businesses for as little as a month. Its reorganization plan, supported by creditors holding 92% of secured notes and aiming for approval by March, involves terminating dozens of unprofitable office space leases and renegotiating the terms for hundreds of others. Fitch Ratings said its ratings on WeWork-exposed CMBS had incorporated such stress scenarios. There were 183 companies that filed for bankruptcies in 2023 with WeWork being the biggest in terms of asset size, after the downfall of SVB Financial Group in March.
At 25%, New York is where WeWork’s biggest office exposure, the bottom left chart shows. The top properties include The Village at San Antonio Center in California and Midtown Center in Washington DC. The largest loan sponsor is Brookfield Strategic Real Estate Partners III, followed by Carr Properties OC LLC, Goldman Sachs Mortgage Company and other sponsors. MetLife Inc. and New York Common Retirement Fund are repeat sponsors too.
Bloomberg
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