WeWork’s IPO Backpaddling Leaves Israel’s Two Largest Banks at Risk

Israel’s two largest banks, Leumi and Hapoalim, are feeling the heat of WeWork’s shelved initial public offering. Over the weekend, a banking consortium that provided WeWork CEO Adam Neumann with a $500 million credit line has started looking into the possibility of revising its terms as WeWork’s listing trials impacted the value of Neumann’s main collateral—his WeWork stock. According to market estimates, Leumi contributed $50 million to the credit line, while Hapoalim added $20 million to the pot.

Approached for comment, both Leumi and Hapoalim stated they do not comment on business matters.

The banking consortium is headed by JP Morgan, who was selected as the lead underwriter of WeWork’s IPO. Other participants include UBS, Goldman Sachs, Barclays PLC, Deutsche Bank AG, and Credit Suisse Group AG. Currently, reports are that not all of the credit line has been used.

WeWork, which initially intended to list according to a company valuation of around $47 billion as it rebranded as the We Company, reportedly went as low as $10 billion before deciding to back out of the IPO due to lukewarm interest from investors. The main concern caused by the cancellation of the IPO is that WeWork’s tenants, having seen the losses specified in its prospectus, will now pressure the company for lower rent, damaging its financial strength. WeWork has a debt of around $45 billion in total lease commitments. In its prospectus, the company prided itself on an increase in its enterprise clients with 500 or more employees. Now, those clients’ strength in numbers mean they pose the most danger to WeWork’s future.

Some financial players in the U.S. are already starting to look at WeWork’s failed IPO as an indication of bigger problems in the market. On Friday, Eric Rosengren, the president of the Boston Federal Reserve Bank, said that the rise in co-working spaces like WeWork could be a source of financial instability that could make the next U.S. recession even worse by causing an increased demand for commercial real estate.