Too White To Catch: Former WeWork CEO Adam Neumann Could Face Margin Calls From UBS, Credit Suisse, JP Morgan
WeWork went from being the highest-valued private U.S. company to a distressed asset in six weeks, and lenders, concerned about collateral, want to revise the terms on former CEO Adam Neumann‘s huge personal credit line.
SoftBank and JPMorgan Chase submitted competing plans to rescue the company. Softbank’s plan could dilute other equity holders including co-founder Neumann, and that might force the JPMorgan to impose margin calls on Neumann, Financial Times reported.
Softbank and JPMorgan plan to inject as much as $5 billion into WeWork in a debt-and-equity deal that could value its equity at $8 billion or less. SoftBank has already invested more than $10 billion in WeWork, so equity holders would be significantly diluted.
If Neumann’s equity stake sees a significant write-down as part of the deal, he could face a margin call from JPMorgan, UBS and Credit Suisse, FT reported. They’ve lent the Neumann hundreds of millions of dollars, using his stock as the main collateral, according to regulatory filings and people in the know.
WeWork: What is a margin call?
A margin call happens when the value of an investor’s margin account — the account holding securities bought with borrowed money — falls below a required broker amount. A margin call is the broker’s demand that an investor deposit more money or securities so that the account is brought up to the minimum value, known as the maintenance margin.
A margin call usually means that one or more of the securities held in the margin account has decreased in value below a certain point, according to Investopedia. The investor must either deposit more money in the account or sell some of the assets held in the account.
SoftBank has hired bankruptcy specialists at investment bank Houlihan Lokey to advise them on how to revive WeWork, FT reported. They’re trying to find ways to reduce WeWork’s liabilities and come up with a valuation by going through its portfolio one building at a time, sources said.
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Neumann raised at least $700 million through share sales and loans against his equity stake. To meet the lenders’ capital demands, he could be forced to promise shares or cash in the margin call and sell some of the property and other assets he has accumulated.
Neumann’s and co-founder Miguel McKelvey’s stake will be worth about $2 billion if the company’s valuation falls to $8 billion, experts say. Earlier this year, the stake was worth almost $13 billion. After dilution, it would be worth a lot less. If Neumann can’t meet the margin call or repay the loan, lenders will face losses.
In early 2019, WeWork achieved up to a $47 billion private valuation.