NEW YORK (BLOOMBERG) - Fitch Ratings downgraded troubled co-working company WeWork and warned that the once high-flying start-up could default on its obligations.

On Thursday (Oct 22), the agency said it lowered the company's long-term issuer default rating to CCC from CCC+. That indicates "substantial credit risk" and suggests "default is a real possibility," according to Fitch's rating scale.

Fitch cited the effects of the Covid-19 pandemic on WeWork's already struggling business model. The start-up tried and failed to go public late last year. The spread of the coronavirus worsened WeWork's predicament as people opted to work from home, rather than in the communal offices the company rents out.

If a fresh wave of Covid-19 cases materializes, or demand for office space declines structurally, Fitch estimated that WeWork would burn through about US$1.5 billion (S$2 billion) of cash in both 2021 and 2022. In that scenario, WeWork would have to seek "additional liquidity, the availability of which is highly uncertain," the agency said.

While WeWork's largest investor, SoftBank Group has provided substantial support to the company, "it is unclear that further funding would be available in a distressed scenario," Fitch wrote. WeWork did not immediately respond to a request for comment.

WeWork's bonds maturing in 2025 last traded at about 63 cents on the dollar, according to Trace pricing data.