Risk.net: Credit Data: Rising Default Risk For Millennial Companies

With its sleek aesthetics, fruit-water dispensers and free beer gimmick, WeWork seemed to perfectly capture the millennial zeitgeist. The co-working company catered to the army of entrepreneurs, start-ups and freelancers that define the gig economy. As millennials became the largest demographic in the workforce, WeWork expanded rapidly. In January 2019, an investment from Japan’s Softbank valued the company at $47 billion. 

Then, everything came crashing down. WeWork pulled its planned initial public offering in September after investors questioned its business model and profitability. Almost overnight, its valuation dropped to under $8 billion. In October, Fitch downgraded WeWork’s credit rating to CCC+, deep in junk territory, with a negative outlook.

WeWork is an extreme example, but its problems could be a harbinger for other companies reliant on millennial customers. Comparing the credit performance of 57 such businesses to more traditional companies – including a subset of the S&P 500 – reveals a worrying trend. Since 2016, companies focused on millennials have seen their credit quality deteriorate by 24% compared with only 7% for the comparator group.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.