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> He has also taken out loans of several hundred million dollars backed by his WeWork shares, people familiar with his finances said. That's not really "cashin

> He has also taken out loans of several hundred million dollars backed by his WeWork shares, people familiar with his finances said. That's not really "cashing out". The portion of your shares that you've sold, sure, but leveraging investments is just an option that's available once you hit a certain point and it just makes sense to take advantage of it.

toomuchtodo 7y ago
I would be interested in the terms of the loan in the event of a rapid depreciation of his WeWork stock (the collateral), or default. Borrowing against funny money (stock being valued by a non-independent entity, Softbank) isn't any more legit. EDIT: To the replies, your home and publicly traded stock can be valued and are semi-liquid. WeWork stock is not in the same class of asset.
- mmastrac 7y ago
  I'm pretty sure it'll be personally guaranteed. The bank takes a flyer that the stock will be worth something, but they are in first place to get paid back if things go south. It's no more "funny money" than me taking out a HELOC against my own house. WeWork clearly is worth >0% of its current mark-to-market, so as long as the bank picks a good ratio of loan-to-asset-value (10% of a 1B asset? Maybe), it's a decent risk for their loan capital.
  - eigenvalue 7y ago
    It's funny money in the sense that the value of your home hasn't increased by thousands of percent in the past couple of years. Also, a large portion of the real estate industry doesn't consider your house valuation to be one of the greatest boondoggles in real estate history.
  - charlesdm 7y ago
    It won't be personally guaranteed. Overcollateralized, sure. Maybe he can take out a $3-400m loan against $1bn worth of stock. Also mind that these loans were taken out before the company was valued at $47bn. Someone who built up that much wealth, even on paper? Every single bank will want to lend him money, at competitive rates. He's going to need / want debt for life to do future deals, even after his WeWork days. You want to be the preferred bank to that person. Banks would much rather lend out $100m than $1m 100x, as it takes a lot less effort. Hence they like these clients. I think you'd be surprised on the terms he got on those loans. The more money you need, the easier generally it is to do a deal.
    - jjeaff 7y ago
      It does take less effort, but it sure doesn't diversify your risk very well. And if they are giving excellent rates, it makes you wonder if they really have such a surplus of money that they can't find enough good risks to loan smaller amounts to at much higher rates. I think it's more, as you mentioned, getting in the good graces of someone that is going to be wealthy the rest of their life.
      - charlesdm 7y ago
        Yes, banks have too much money (I'm not even kidding here, they have too much money and not enough good transactions to lend money for). So if they find someone potentially great (think Elon Musk, Patrick Drahi, John Malone, or this guy) they are all over it. In all honesty, small businesses are super high risk. This is generally lower risk, because the legal / due diligence / etc will have been done better. Also the likelihood of plain fraud is less. It's a combination of both. At the end of the day, there are always things that need to be financed. That's whether you're worth a million or a billion. So might as well build up a good relationship. It's easier to establish those relationships with big accounts, but it's also a more competitive environment (so you need to give good rates and not waste time with bullshit offers -- like they often do in retail).
  - femto113 7y ago
    "WeWork clearly is worth >0% of its current mark-to-market" I don't think that's at all clear. They own very little, so what they are "worth" is largely in the form of goodwill. They already have a lot of debt, and the viability of the company for the near future hinges on their ability to continue take on more debt. There are multiple plausible scenarios where the company's value goes negative, including the debt markets turning against them for reasons specific to WeWork or for some more global reason.
    - rurp 7y ago
      WeWork certainly could end up being worthless in a few years, but there's also a very good chance that it's not. The current price of a company should be more or less a weighted average of possible outcomes. The only way WeWork would be worth nothing today is if it's guaranteed to go out of business, which is not the case.
- beambot 7y ago
  It's called collateral. Most illiquid assets are "funny money" until you go to sell -- including a home. Banks determine an intrinsic value (and risk) and lend accordingly.
bduerst 7y ago
It's not the cashing out that's unusual. In a vacuum, sure, using investments as collateral for loans is SOP. Using the controlling share of a company that's planning to IPO in less than six months? That's a bit more unusual. It makes you wonder about the terms, or fuels your imagination with who's fronting the cash for something that risky and what types of situations justify it.
- jjeaff 7y ago
  My guess is they will have to include a few things regarding that in the disclosures.
  - bduerst 7y ago
    They really don't though. It isn't WeWork that's taking out the loans, but him the individual.
    - jjeaff 7y ago
      I think if your founder and controlling owner is leveraged to the hilt and there exists a risk he could lose the shares to debtors, that seems like a big risk investors should know about.
rolltiide 7y ago
Super tax efficient too. The loan is not taxed and the interest is often times deductible. You'll probably make money too, but if you don't you can still deduct the expenses you bought, and if it was an investment you can get capital losses against when he really does cash in the shares at a gain. NY Times might say you "lost $700M" though, to sell some newspapers. Almost no benefit in explaining unless you want the law to get changed - which would benefit nobody.
- jjeaff 7y ago
  I don't see how the interest would be deductible. Except for the portion allowed under the mortgage exemption. And sure, the loan is not taxed. But the money that ends up being used to pay back the loan will have had to be taxed.
  - mmastrac 7y ago
    Unsure how the US works, but loans for investment purposes in Canada are deductible against the income that the investments make.
  - rolltiide 7y ago
    Interest is deductible if the loan was used for something profitable. What the loan was spent on can also be deducted if its for something thats intended to be profitable.

toomuchtodo 7y ago

I would be interested in the terms of the loan in the event of a rapid depreciation of his WeWork stock (the collateral), or default. Borrowing against funny money (stock being valued by a non-independent entity, Softbank) isn't any more legit. EDIT: To the replies, your home and publicly traded stock can be valued and are semi-liquid. WeWork stock is not in the same class of asset.

mmastrac 7y ago
I'm pretty sure it'll be personally guaranteed. The bank takes a flyer that the stock will be worth something, but they are in first place to get paid back if things go south. It's no more "funny money" than me taking out a HELOC against my own house. WeWork clearly is worth >0% of its current mark-to-market, so as long as the bank picks a good ratio of loan-to-asset-value (10% of a 1B asset? Maybe), it's a decent risk for their loan capital.
- eigenvalue 7y ago
  It's funny money in the sense that the value of your home hasn't increased by thousands of percent in the past couple of years. Also, a large portion of the real estate industry doesn't consider your house valuation to be one of the greatest boondoggles in real estate history.
- charlesdm 7y ago
  It won't be personally guaranteed. Overcollateralized, sure. Maybe he can take out a $3-400m loan against $1bn worth of stock. Also mind that these loans were taken out before the company was valued at $47bn. Someone who built up that much wealth, even on paper? Every single bank will want to lend him money, at competitive rates. He's going to need / want debt for life to do future deals, even after his WeWork days. You want to be the preferred bank to that person. Banks would much rather lend out $100m than $1m 100x, as it takes a lot less effort. Hence they like these clients. I think you'd be surprised on the terms he got on those loans. The more money you need, the easier generally it is to do a deal.
  - jjeaff 7y ago
    It does take less effort, but it sure doesn't diversify your risk very well. And if they are giving excellent rates, it makes you wonder if they really have such a surplus of money that they can't find enough good risks to loan smaller amounts to at much higher rates. I think it's more, as you mentioned, getting in the good graces of someone that is going to be wealthy the rest of their life.
    - charlesdm 7y ago
      Yes, banks have too much money (I'm not even kidding here, they have too much money and not enough good transactions to lend money for). So if they find someone potentially great (think Elon Musk, Patrick Drahi, John Malone, or this guy) they are all over it. In all honesty, small businesses are super high risk. This is generally lower risk, because the legal / due diligence / etc will have been done better. Also the likelihood of plain fraud is less. It's a combination of both. At the end of the day, there are always things that need to be financed. That's whether you're worth a million or a billion. So might as well build up a good relationship. It's easier to establish those relationships with big accounts, but it's also a more competitive environment (so you need to give good rates and not waste time with bullshit offers -- like they often do in retail).
- femto113 7y ago
  "WeWork clearly is worth >0% of its current mark-to-market" I don't think that's at all clear. They own very little, so what they are "worth" is largely in the form of goodwill. They already have a lot of debt, and the viability of the company for the near future hinges on their ability to continue take on more debt. There are multiple plausible scenarios where the company's value goes negative, including the debt markets turning against them for reasons specific to WeWork or for some more global reason.
  - rurp 7y ago
    WeWork certainly could end up being worthless in a few years, but there's also a very good chance that it's not. The current price of a company should be more or less a weighted average of possible outcomes. The only way WeWork would be worth nothing today is if it's guaranteed to go out of business, which is not the case.
beambot 7y ago
It's called collateral. Most illiquid assets are "funny money" until you go to sell -- including a home. Banks determine an intrinsic value (and risk) and lend accordingly.

bduerst 7y ago

It's not the cashing out that's unusual. In a vacuum, sure, using investments as collateral for loans is SOP. Using the controlling share of a company that's planning to IPO in less than six months? That's a bit more unusual. It makes you wonder about the terms, or fuels your imagination with who's fronting the cash for something that risky and what types of situations justify it.

jjeaff 7y ago
My guess is they will have to include a few things regarding that in the disclosures.
- bduerst 7y ago
  They really don't though. It isn't WeWork that's taking out the loans, but him the individual.
  - jjeaff 7y ago
    I think if your founder and controlling owner is leveraged to the hilt and there exists a risk he could lose the shares to debtors, that seems like a big risk investors should know about.

rolltiide 7y ago

Super tax efficient too. The loan is not taxed and the interest is often times deductible. You'll probably make money too, but if you don't you can still deduct the expenses you bought, and if it was an investment you can get capital losses against when he really does cash in the shares at a gain. NY Times might say you "lost $700M" though, to sell some newspapers. Almost no benefit in explaining unless you want the law to get changed - which would benefit nobody.

jjeaff 7y ago
I don't see how the interest would be deductible. Except for the portion allowed under the mortgage exemption. And sure, the loan is not taxed. But the money that ends up being used to pay back the loan will have had to be taxed.
- mmastrac 7y ago
  Unsure how the US works, but loans for investment purposes in Canada are deductible against the income that the investments make.
- rolltiide 7y ago
  Interest is deductible if the loan was used for something profitable. What the loan was spent on can also be deducted if its for something thats intended to be profitable.