After WeWork, the Market is Concerned About SoftBank's Massive Debt Load Again

(Bloomberg) -- Concern about SoftBank Group Corp.’s massive debt load has reared its head again after the company unveiled a $9.5 billion bailout for WeWork last week, hurting its shares and bonds.

While the price tag for SoftBank to rescue the debt-riddled U.S. shared-office startup isn’t seen as big relative to its total investment portfolio, concern is growing about the impact on its leverage. Analysts expect its loan-to-value ratio, a key metric looking at its net interest-bearing debt against the value of investments, to rise as a result of the WeWork acquisition, though they generally see it staying below the company’s target.

“This announcement is a fundamental credit negative for SoftBank Group,” wrote Mary Pollock, a senior analyst at CreditSights, in a report. She said the deal will increase SoftBank’s LTV to 22.8%. Son has said he wants to keep that gauge below 25%. The gauge was at 18% as of Friday.

SoftBank spokeswoman Hiroe Kotera said, “Our company’s financial policy has not changed.”

Separate news also fueled concern about the value of the investment portfolio at billionaire Masayoshi Son’s firm, which could also affect the key LTV ratio. The company is planning to take a writedown to its Vision Fund of at least $5 billion to reflect a plunge in the value of some of its biggest holdings, including WeWork and Uber Technologies Inc., according to people with knowledge of the matter. Read more about that here.

Rating companies haven’t changed their debt scores for SoftBank after the WeWork news. Moody’s Investors Service and S&P Global Ratings grade it as junk.

The price of SoftBank’s most recent yen notes fell to the lowest since they were issued last month, and the cost to insure its debt against default touched the highest level since January.

SoftBank’s shares dropped 6.6% last week, the worst performance in 2 1/2 months. Atul Goyal, an analyst at Jefferies, cut SoftBank to Hold on Friday, one of only two analysts out of 19 tracking the company to confer that rating.

“SoftBank would be an interesting stock for gambling purposes as it’s volatile, but I don’t think it’s a stable investment product for fixed-income traders,” said Katsuyuki Tokushima, head of pension research of financial research department at NLI Research Institute.

SoftBank is teeing up investments for the successor to its gargantuan Vision Fund. It’s in talks to back a pharmaceutical delivery startup, a company focused on robotic burger-making and a maker of lab-grown meat, according to people with knowledge of the matter. Vision Fund 2 is the next iteration of SoftBank’s first $100 billion fund.

To contact the reporter on this story: Ayai Tomisawa in Tokyo at atomisawa@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Ken McCallum

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