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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 t

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.

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.