Landlord creditors and issuing banks are waiting to see how the flexible workspace provider WeWork will be restructured since it filed for US bankruptcy protection last week.

Especially amidst increasing concerns over the workspace provider's finances in recent years, letters of credit (L/Cs) have played a critical role in WeWork's financial arrangements, with many landlords demanding an L/C rather than a corporate guarantee from the company to ensure that their rent is paid.

Spectacular collapse

Once the most valuable US start-up worth US$47 billion, WeWork had a market capitalisation of just US$326 million in August 2023.

In the same month, the company warned that it had "substantial doubt" that it could stay in business, and might file for bankruptcy. On 31 October 2023, reports circulated that WeWork would be doing so imminently, resulting in a 37 per cent dip in share value. One week later, the workspace provider officially filed for bankruptcy.

L/C positions

Some landlords, if they have an L/C issued from a bank to ensure they will be paid in the event WeWork is unable to do so, may move to draw down on the L/Cs.

But those landlords may also be looking to see how WeWork may be restructured. The company's backers including SoftBank Group and bondholders including King Street Capital Management are reportedly each seeking to take control of the company via a new restructuring after pouring money into the firm.

Possible outcomes

Landlords may not rush into drawing down on L/Cs until they have a clearer indication of how the restructuring will be shaped, and they may want to consider whether a revitalised WeWork would be a desirable tenant.

Those landlords without L/Cs meanwhile would certainly be interested in the restructuring and would benefit from renegotiating leases. Landlords not in L/C secured positions may be willing to renegotiate, even if they are only paid a proportion of the rent originally agreed with WeWork.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.