Knotel Files for Bankruptcy as Pandemic Strains Office Rentals
(Bloomberg) -- Knotel Inc. filed for bankruptcy in Delaware after the WeWork rival succumbed to work-from-home pressures driven by the coronavirus pandemic.
The firm plans to use the Chapter 11 process to sell assets and liquidate, according to a declaration by Chief Financial Officer John Jureller. An affiliate of Newmark Group Inc., a real estate services firm, provided $20 million of new bankruptcy financing and committed to a $70 million stalking horse credit bid for the assets. The bid sets the floor for further bids at auction.
Knotel, which manages and rents short-term office space, saw customers cancel contracts, skip payments and ask for reduced rents after stay at home orders began last year, causing its revenue to plunge, Jureller said. Knotel listed both liabilities and assets of $1 billion to $10 billion, according to the petition.
Founded in 2015, Knotel had more than 4 million square feet (1.22 million square meters) of leased workspace under management in early 2020 and more than 300 customers across the U.S., Europe, Asia and South America, according to the Jureller declaration. Covid-19 has cast doubt on the business model of Knotel and other flexible office space and co-working companies that rely on people working near each other.
The company, which employed about 110 people at the time of its filing, said in March of last year that it was cutting or furloughing half of its staff, or about 200 workers, in response to the coronavirus.
It made significant real estate investments in 2019 and closed additional financing in anticipation of 2020 being a year of growth, according to Jureller. Knotel has been operating with losses and negative cash flow for the past “several years,” he said.
“The damper placed on the revenue-generating potential of these properties by the Covid-19 pandemic has severely disrupted the debtors’ business plans and operations, imposing a significant liquidity crisis,” Jureller said.
Knotel hired Moelis & Co. to pursue out-of-court financing solutions, but the length of the pandemic made that too difficult to achieve, according to the Jureller declaration.
Newmark affiliate Digiatech LLC, an existing preferred shareholder, purchased the company’s first-lien and second-lien debt in the month leading up to the bankruptcy, according to a declaration from Moelis managing director Adam Keil.
The DIP facility, which will roll up $20 million of secured debt, has a 12% interest rate and an upfront fee of 3%, according to Keil. The around $20 million of new money is part of a total $40.8 million bankruptcy loan. Knotel initially seeks to borrow up to $30 million, according to the Keil declaration.
The case is Knotel Inc., 21-10146, U.S. Bankruptcy Court, District of Delaware. To view the docket on Bloomberg Law, click here.
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