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WeWork (NYSE:WE) stock dropped 4% to $2.89/share afterhours on Monday as the company said it would not make two sets of interest payments totaling about $95M.
The company has a 30-day grace period to make interest payments of ~$37.3M in cash and $57.9M in additional payment-in-kind notes before non-payment constitutes an ‘event of default’. The payments were due on October 2, WeWork (WE) disclosed in a filing.
This move is an attempt to allow talks with lenders, even as WeWork (WE) is renegotiating leases with its landlords, while also enhancing its liquidity amid restructuring efforts. WeWork (WE) said it has the liquidity to make the interest payments.
While skipping interest payments is not necessary to negotiate with lenders, debt-laden companies may use this move to pressure lenders to amend deals with more favorable terms.
“What our lenders will really want to understand is the company’s credit profile when the landlord conversations reach a conclusion,” David Tolley, WeWork’s (WE) interim chief executive, told The New York Times.
“We don’t know how that landlord negotiation is going to play out,” he said, adding that no decisions had been reached regarding filing for bankruptcy.
The co-working giant had hired advisors after it flagged going concern risks in the backdrop of a shrinking cash pile and declining memberships.