4 ms·

To tack on to this, why would investors want to own WeWork bonds vs equity in the company? In the case where bond holders do well, wouldn't shareholders do bet

by jld 8y ago

To tack on to this, why would investors want to own WeWork bonds vs equity in the company? In the case where bond holders do well, wouldn't shareholders do better? And in the bad scenario, with as many long term liabilities as WeWork has, are the bond holders going to be substantially more secured than the shareholders? Does WeWork own anything real to secure the debt?

stevenwoo 8y ago
WeWork bought their corporate HQ building.
sethgecko 8y ago
> Does WeWork own anything real to secure the debt? From the article: WeWork is issuing seven-year, senior unsecured bonds
dragontamer 8y ago
> To tack on to this, why would investors want to own WeWork bonds vs equity in the company? Because if the company goes bankrupt, bond-holders get paid before shareholders. As such, bond-holders are always in a less-risky position. You'll always recoup some of your money during bankruptcy. (Don't estimate the value of the shelves and furniture!) While shareholders only get some $$ if the bonds are fully paid off. > In the case where bond holders do well, wouldn't shareholders do better? Not always. Bond holders will do well if the share-price stays steady or even negative. The company may stagnate over the next 7 years, at which point holding bonds would have been a better investment. The company is legally obligated to pay bondholders at its highest priority, until bankruptcy. The Bonds aren't sold yet, but will likely be in the range of 4.5% to 5% (depending on market conditions during the sell-date). Over 7 years, the company needs to grow its share price by 36% for equity to beat a 4.5% bonds, or 40% to beat the 5% bond. Doable for sure, but its not too hard imagining a situation where they fail this benchmark and the bonds end up the superior choice. For example: GNC's stock price doesn't help its shareholders, but the bond-holders would be doing fine.
- JamesBarney 8y ago
  I think OP is asking because he thinks that WeWork is closer to a startup where it will either grow quickly or fail. And that bonds don't look particularly appealing to a investors for a company like that unless they have significant real assets that are worth money in the event of the company failing.
spyspy 8y ago
It's not mentioned in the article, but the bonds could be convertible, which would allow the bondholders to exchange them for stock in the future. Bondholders are almost guaranteed to be more secure than shareholders by law (getting their money back isn't guaranteed if WeWork went bankrupt but they'll 100% get paid before shareholders. Finally, WeWork owns real property so they have plenty of collateral.
- dragontamer 8y ago
  > but the bonds could be convertible Such bonds are called "convertible bonds". The bonds listed in this article are: > WeWork is issuing seven-year, senior unsecured bonds Which is pretty specific. I don't know the meaning of every word, but it sounds as if this is a conventional 7-year junk bond. So I'm not 100% a financial professional. But I'm pretty sure the lingo is super-specific about these details.
  - spyspy 8y ago
    Senior and unsecured don't mean that they aren't also convertible.
    - dragontamer 8y ago
      Well, there are certain keywords that are typically left off (ie: "Callable") because they're so far in the weeds that they don't really make a big difference. But "convertible debt" is a big deal. If Bloomberg (a financial newspaper) didn't use the word "convertible" to describe the debt, its probably not convertible.
jonknee 8y ago
Yield, an equity stake in WeWork doesn't pay anything. If WeWork stops paying its bonds you can assume shareholders aren't going to be doing any better.
alpos 8y ago
My understanding is that they own some properties and rent others on long term contracts. Therefore, WeWork lives off the arbitrage between long term and short term obligations so it's basically a REIT. Most REITs are highly leveraged and almost entirely debt funded. I think it's actually weird that they have VC and try to act like a tech startup. There is no new technology in WeWork and there are no legal ways to create or corner markets in real estate; people have been trying for millennia. Unless they have a highly scalable revenue stream hidden somewhere, we can expect that their valuation will, at best, grow on a similar curve to other REITs. If I owned their equity, it would be because I got it super cheap and expected them to start paying a dividend sometime soon. I would not own their debt except through a broad based ETF. It's really hard to make long term profits on junk bonds except by playing the law of averages.

by jld 8y ago

stevenwoo 8y ago

WeWork bought their corporate HQ building.

sethgecko 8y ago

> Does WeWork own anything real to secure the debt? From the article: WeWork is issuing seven-year, senior unsecured bonds

dragontamer 8y ago

> To tack on to this, why would investors want to own WeWork bonds vs equity in the company? Because if the company goes bankrupt, bond-holders get paid before shareholders. As such, bond-holders are always in a less-risky position. You'll always recoup some of your money during bankruptcy. (Don't estimate the value of the shelves and furniture!) While shareholders only get some $$ if the bonds are fully paid off. > In the case where bond holders do well, wouldn't shareholders do better? Not always. Bond holders will do well if the share-price stays steady or even negative. The company may stagnate over the next 7 years, at which point holding bonds would have been a better investment. The company is legally obligated to pay bondholders at its highest priority, until bankruptcy. The Bonds aren't sold yet, but will likely be in the range of 4.5% to 5% (depending on market conditions during the sell-date). Over 7 years, the company needs to grow its share price by 36% for equity to beat a 4.5% bonds, or 40% to beat the 5% bond. Doable for sure, but its not too hard imagining a situation where they fail this benchmark and the bonds end up the superior choice. For example: GNC's stock price doesn't help its shareholders, but the bond-holders would be doing fine.

JamesBarney 8y ago
I think OP is asking because he thinks that WeWork is closer to a startup where it will either grow quickly or fail. And that bonds don't look particularly appealing to a investors for a company like that unless they have significant real assets that are worth money in the event of the company failing.

spyspy 8y ago

It's not mentioned in the article, but the bonds could be convertible, which would allow the bondholders to exchange them for stock in the future. Bondholders are almost guaranteed to be more secure than shareholders by law (getting their money back isn't guaranteed if WeWork went bankrupt but they'll 100% get paid before shareholders. Finally, WeWork owns real property so they have plenty of collateral.

dragontamer 8y ago
> but the bonds could be convertible Such bonds are called "convertible bonds". The bonds listed in this article are: > WeWork is issuing seven-year, senior unsecured bonds Which is pretty specific. I don't know the meaning of every word, but it sounds as if this is a conventional 7-year junk bond. So I'm not 100% a financial professional. But I'm pretty sure the lingo is super-specific about these details.
- spyspy 8y ago
  Senior and unsecured don't mean that they aren't also convertible.
  - dragontamer 8y ago
    Well, there are certain keywords that are typically left off (ie: "Callable") because they're so far in the weeds that they don't really make a big difference. But "convertible debt" is a big deal. If Bloomberg (a financial newspaper) didn't use the word "convertible" to describe the debt, its probably not convertible.

jonknee 8y ago

Yield, an equity stake in WeWork doesn't pay anything. If WeWork stops paying its bonds you can assume shareholders aren't going to be doing any better.

alpos 8y ago

My understanding is that they own some properties and rent others on long term contracts. Therefore, WeWork lives off the arbitrage between long term and short term obligations so it's basically a REIT. Most REITs are highly leveraged and almost entirely debt funded. I think it's actually weird that they have VC and try to act like a tech startup. There is no new technology in WeWork and there are no legal ways to create or corner markets in real estate; people have been trying for millennia. Unless they have a highly scalable revenue stream hidden somewhere, we can expect that their valuation will, at best, grow on a similar curve to other REITs. If I owned their equity, it would be because I got it super cheap and expected them to start paying a dividend sometime soon. I would not own their debt except through a broad based ETF. It's really hard to make long term profits on junk bonds except by playing the law of averages.