💥(We)Working Towards Rationalization💥

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The elephant in the room for the WeWork debtors ($WEWKQ) and their chapter 11 cases is, and will continue to be, their massive lease obligations. We, of course, highlighted the issue in our first day coverage here:

💥WE💥

We said:

The debtors filed a motion already seeking to reject ~60 unexpired real property leases, including around 40 locations in NYC alone. “As of the Petition Date, Hilco is in active negotiations with over 400 landlords to consummate lease amendment agreements.” Expect additional rejection motions to come.

The subsequent order actually approved the rejection of 66 unexpired leases and, since then, the WeWork debtors have added 13 more to the approved rejection pile.

Since that initial wave, however, things have slowed down a little as the WeWork debtors try to rationalize their portfolio. “Try to rationalize” appears to have many meanings. One, per the Wall Street Journal:

WeWork has been talking to its roughly 500 landlords globally and has amended 38 leases to achieve roughly $1.5 billion in long-term savings through rent reduction, downsized leased space, shortened lease duration, or sometimes early termination of leases, the company told The Wall Street Journal. 

And, two, “[t]ry to rationalize” also means holding prisoner those post-petition rent payments due to landlords who aren’t necessarily playing ball! 💰

That’s right, there are ~19 motions on the docket from landlords to compel the WeWork debtors to pay post-petition rent. In a January 30, 2024 supplemental declaration from Dorsey & Whitney LLP’s Courina Yulisa, on behalf of landlord, 729 Washington Property Owner LLC, she states:

To date, the Debtor owes Post-Petition Interest for the January Rent commencing on January 6, 2024 and for any electric charges invoiced but remains unpaid after 30 days the electric invoice was sent to the Debtor. These Post-Petition Interest amount continues to accrue and will be increased to include the February rent and the electric charges, as applicable, until the Post-Petition Amount Due is paid.

(Yes, that is a direct quote 😳).

The other motions echo the exact same sentiment. And the official committee of unsecured creditors (“UCC”) is siding with the landlords:

[T]he Bankruptcy Code is unequivocal in mandating that a debtor in possession must honor all postpetition rent obligations as they come due.

Yet, without seeking relief from this Court or providing advance notice to the Committee, the Debtors elected not pay January rent on account of certain leases amounting to approximately $33 million in rent obligations. The Committee understands that notwithstanding nonpayment of January rent, the Debtors have not rejected any of the applicable leases, nor have the Debtors returned possession of any of the applicable locations to their property owners.

How did the WeWork debtors respond? Well, contrary to the UCC’s assertion, they’ve gone ahead and in some cases savagely rejected the leases of some of the complaining landlords, 😂.