In the case where bond holders do well, wouldn't shareholders do better? And in the bad scenario, with as many long term liabilities as WeWork has, are the bond holders going to be substantially more secured than the shareholders?
Does WeWork own anything real to secure the debt?
Because if the company goes bankrupt, bond-holders get paid before shareholders.
As such, bond-holders are always in a less-risky position. You'll always recoup some of your money during bankruptcy. (Don't estimate the value of the shelves and furniture!) While shareholders only get some $$ if the bonds are fully paid off.
> In the case where bond holders do well, wouldn't shareholders do better?
Not always. Bond holders will do well if the share-price stays steady or even negative. The company may stagnate over the next 7 years, at which point holding bonds would have been a better investment. The company is legally obligated to pay bondholders at its highest priority, until bankruptcy.
The Bonds aren't sold yet, but will likely be in the range of 4.5% to 5% (depending on market conditions during the sell-date). Over 7 years, the company needs to grow its share price by 36% for equity to beat a 4.5% bonds, or 40% to beat the 5% bond. Doable for sure, but its not too hard imagining a situation where they fail this benchmark and the bonds end up the superior choice.
For example: GNC's stock price doesn't help its shareholders, but the bond-holders would be doing fine.
Such bonds are called "convertible bonds". The bonds listed in this article are:
> WeWork is issuing seven-year, senior unsecured bonds
Which is pretty specific. I don't know the meaning of every word, but it sounds as if this is a conventional 7-year junk bond.
So I'm not 100% a financial professional. But I'm pretty sure the lingo is super-specific about these details.
But "convertible debt" is a big deal. If Bloomberg (a financial newspaper) didn't use the word "convertible" to describe the debt, its probably not convertible.
There is no new technology in WeWork and there are no legal ways to create or corner markets in real estate; people have been trying for millennia. Unless they have a highly scalable revenue stream hidden somewhere, we can expect that their valuation will, at best, grow on a similar curve to other REITs.
If I owned their equity, it would be because I got it super cheap and expected them to start paying a dividend sometime soon.
I would not own their debt except through a broad based ETF. It's really hard to make long term profits on junk bonds except by playing the law of averages.
From the article: WeWork is issuing seven-year, senior unsecured bonds