By Dietrich Knauth
NEW YORK (Reuters) - WeWork may be forced to take on a new bankruptcy loan to make up for slower-than-expected progress on rent negotiations, an attorney for the shared office space provider said Monday.
WeWork's post-bankruptcy business plan is premised on a significant reduction in future rent costs from its landlords, and WeWork is at a crossroads in that effort, according to attorneys for WeWork and its landlords who spoke at a bankruptcy court hearing in Newark, New Jersey.
Several of WeWork's landlords decried the company's "hardball tactics", saying that U.S. bankruptcy law requires companies to keep up with rent for properties that they continue to use.
Kris Hansen, an attorney representing WeWork creditors, said that WeWork has shown "painfully little progress" in its discussions with landlords, raising doubts about the company's long-term ability to pay its debts.
WeWork attorney Steven Serajeddini acknowledged that the company's initial round of negotiations had been headed for "certain failure," but he said WeWork has had more success after withholding as much as $33 million in January rent from certain landlords.
"The message was clear - you're either with us or against us," Serajeddini told U.S. Bankruptcy Judge John Sherwood, who is overseeing the company's Chapter 11. "If your focus is on one month's rent, instead of saving this company, you're on the wrong side and your lease will be rejected."
WeWork initially believed it could make it through its bankruptcy case using the $164 million of cash it had on hand in November, but it now believes that amount to be insufficient and is considering taking out a new bankruptcy loan, Serajeddini said. A new loan would likely be converted into WeWork equity after the company emerges from bankruptcy, he said.
WeWork, once valued at $47 billion, filed for bankruptcy in November. The Softbank-backed company expanded at breakneck speed but racked up losses on its long-term lease obligations as more people began working from home during the pandemic and demand for office space plunged.
The company is free to reject leases, but it cannot have it both ways by failing to pay rent while continuing to occupy property, landlord attorney Ivan Gold said.
"Withholding rent, or to quote a few of my clients, 'taking hostages,' is not conducive to negotiations," Gold said.
Sherwood will consider the legality of WeWork's January rent withholding on Feb. 20, when he will hear three landlords' demands for payment of over $4 million in withheld rent.