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Wow, it's high leverage on top of unusual leverage on top of high leverage. Quoting from the OP: "Boil things down and WeWork is a leveraged real estate compan

by cs702 7y ago

Wow, it's high leverage on top of unusual leverage on top of high leverage. Quoting from the OP: "Boil things down and WeWork is a leveraged real estate company[a] propped up by a leveraged pool of late-stage venture capital (the Vision Fund)[b], which is in turn controlled by a leveraged telecoms and technology company (SoftBank).[c]" It's like Peter borrowing a large amount of money to invest with Paul, who then, unusually, borrows on top of Peter's investment to invest with Mary, who then borrows another large amount of money on top of Peter's investment to invest in her own scheme. What happens if Mary can't pay back? -- [a] WeWork has borrowed and wants to borrow more to finance operations, both in the form of corporate debt and in the form of long-term lease commitments: https://www.sec.gov/Archives/edgar/data/1533523/000119312519220499/d781982ds1.htm https://www.sec.gov/Archives/edgar/data/1533523/000119312519... [b] The Vision Fund has borrowed money on top of Softbank's investment: https://archive.is/o/9I97g/https://www.ft.com/content/b6fe313a-4add-11e7-a3f4-c742b9791d43 https://archive.is/o/9I97g/https://www.ft.com/content/b6fe31... [c] Softbank has borrowed money to invest in the Vision Fund: https://archive.is/o/9I97g/https://www.bloomberg.com/news/articles/2019-02-17/softbank-says-leverage-not-a-problem-rating-firms-not-so-sure https://archive.is/o/9I97g/https://www.bloomberg.com/news/ar...

benj111 7y ago
As far as the debt in the vision fund is concerned, that all seems to be held by investors who already have skin in the game. For the company this seems to be fundamentally safe? the interests of shareholders and bond holders are aligned, bond holders won't be clamouring to wipe out the shareholders and visa versa. I'm sure you'll find some leverage if you look at Softbanks debt holders also.
- baybal2 7y ago
  I find good parallels in how today's "high finance" begins to resemble late Soviet Union's economy. There was an extreme amount of pointless and doomed enterprises, but given just how much "national capital" was invested, and how much credibility economic planners had at stake for their imagined economic theories, an absolutely ridiculous amount of self-deception was made. And from that on, lies and economic data falsification went into a downward spiral. The amount of "funny money" being going around state institutes in a convoluted scheme of mutual bailouts, reciprocal investment deals, capital parking arrangements, "kickback backed credits," and LBOs (Yes! The Union had LBOs, at least on paper) began to outnumber the amount of cash going exchanged in the tiny real economy by triple digits.
  - benj111 7y ago
    Ignoring the last paragraph, you just seem to be describing a bubble, which the vision fund could well turn out to be. Its just human nature, no political or economic system is immune.
    - vkou 7y ago
      What the grandparent poster described in the first two paragraphs is a typical large company. You could replace the words 'late Soviet Union' with 'almost any Fortune 500 firm', and it would be an accurate description of its internal economy.
    - onlyrealcuzzo 7y ago
      It seemed to me like he was describing China exactly.

by cs702 7y ago

benj111 7y ago

As far as the debt in the vision fund is concerned, that all seems to be held by investors who already have skin in the game. For the company this seems to be fundamentally safe? the interests of shareholders and bond holders are aligned, bond holders won't be clamouring to wipe out the shareholders and visa versa. I'm sure you'll find some leverage if you look at Softbanks debt holders also.

baybal2 7y ago
I find good parallels in how today's "high finance" begins to resemble late Soviet Union's economy. There was an extreme amount of pointless and doomed enterprises, but given just how much "national capital" was invested, and how much credibility economic planners had at stake for their imagined economic theories, an absolutely ridiculous amount of self-deception was made. And from that on, lies and economic data falsification went into a downward spiral. The amount of "funny money" being going around state institutes in a convoluted scheme of mutual bailouts, reciprocal investment deals, capital parking arrangements, "kickback backed credits," and LBOs (Yes! The Union had LBOs, at least on paper) began to outnumber the amount of cash going exchanged in the tiny real economy by triple digits.
- benj111 7y ago
  Ignoring the last paragraph, you just seem to be describing a bubble, which the vision fund could well turn out to be. Its just human nature, no political or economic system is immune.
  - vkou 7y ago
    What the grandparent poster described in the first two paragraphs is a typical large company. You could replace the words 'late Soviet Union' with 'almost any Fortune 500 firm', and it would be an accurate description of its internal economy.
  - onlyrealcuzzo 7y ago
    It seemed to me like he was describing China exactly.