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WeWork's Biggest Fan Among Ratings Firms Is Finding New Doubts

WeWork's Biggest Fan Among Ratings Firms Is Finding New Doubts

(Bloomberg) -- Fitch Ratings, the most optimistic bond grader about WeWork Cos.’s future profitability, has lost some of its faith.

The bond ratings firm downgraded WeWork’s bonds by three steps, bringing its junk grade into the same tier as S&P Global Ratings’, after the office leasing company filed paperwork to go public and gave little indication of when it will start to make money. When WeWork sold $702 million of high-yield bonds last year, credit graders were unusually split on how to rate the debt.

Debt investors shrugged off the downgrades. WeWork’s bonds soared Wednesday to as much as 102.5 cents on the dollar, the highest level on record, after the company said it had repurchased a portion of its notes and may have an incentive to refinance the debt before it matures in 2025. An initial public offering gives the company more avenues for raising capital to repay debt in the future.

WeWork's Biggest Fan Among Ratings Firms Is Finding New Doubts

In a statement Wednesday, Fitch analysts led by Kevin McNeil said they were downgrading the bonds to B-, or six steps below investment-grade, from BB-. It said the company is performing worse than the ratings firm had expected, and said “it is clear the company is making a choice” to delay becoming more profitable.

Fitch deems the B- level “highly speculative.” Its earlier BB- assessment of the bonds was the rosiest of the major credit graders, who assessed the company across the junk spectrum. S&P Global Ratings grades the notes B+, or two steps higher than Fitch now, while Moody’s Investors Service deemed the debt Caa1, or one step below Fitch, before withdrawing its rating.

Even after Wednesday’s rally, the junk bond market is still pricing in WeWork’s risk as higher than credit graders might indicate. At its current yield of about 7.4%, the notes due 2025 yield more than average for a single-B rated security, but below those typically seen in the triple-C tier of junk debt.

To contact the reporter on this story: Claire Boston in New York at cboston6@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Dan Wilchins, Adam Cataldo

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