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Opinion

High-yield bond market: Community theatre

WeWork’s debut in the high-yield bond market was helped by investors effectively turning a blind eye to its costs of sales.

WeWork_Old_St_London-780

WeWork in Old Street, London



Hindsight is a wonderful thing. Before the market crash of 2007 the phrases ‘no doc’ or ‘low doc’ mortgages (or ‘liar loans’) should probably have rung a few bells among market participants. So when today’s bankers and investors look back a few years from now, will there be certain phrases that they will tell themselves they should have seen as a forewarning of things to come?

If there are, there is a good chance that ‘community-adjusted ebitda’ might be one of them.

This is the term coined by workspace network WeWork when launching its first-ever high-yield bond in April. What it does is enable the company to turn the adjusted ebitda of negative $193 million of its most recent financial results into a positive community-adjusted ebitda of $233 million. 

This spectacular improvement in earnings has not been achieved in the old-fashioned way of, you know, improving performance but in the new e-way of ignoring all your sales costs. 

Deal

So the ebitda on which the bond deal is based ignores the following: interest, taxes, depreciation and amortization, marketing, administrative costs, and development and design costs.




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