WeWork Cos.’s first bonds have dropped sharply in price since they were issued last week, raising new questions about the willingness of debt investors to support cash-burning startups.
A New York City-based office-space provider that is privately valued at $20 billion, WeWork scored a victory on April 25 when it raised $702 million by selling new seven-year bonds at par with a 7.875% coupon. Those bonds, however, started falling in the secondary market almost as soon as they were issued, suggesting that demand for the debt was thinner than lead-underwriter JPMorgan Chase & Co. had anticipated.
The bonds, due 2025, traded at 96 cents on the dollar on Wednesday, according to MarketAxess, translating to a yield of around 8.6%.
Regardless of what the bonds do in the secondary market, WeWork will only have to pay a 7.875% interest rate. Still, their performance to date suggests it could be costlier for the company to issue debt in the future.
WeWork isn’t the only fast-growing young company to recently issue bonds that have fallen after issuance. The electric-car maker Tesla Inc. brought a similar story to investors last August when it sold $1.8 billion of bonds at a 5.3% interest rate.