Investopedia defines zombies as “companies that earn just enough money to continue operating and service their debt… Zombie companies have no excess capital to spur growth and are considered close to insolvency.” Here are two articles on zombies:
Gary Barohn, CFA wrote an article for Realdaily titled 10 ‘Zombie’ Stocks to Avoid If Interest Rates Go Up (April 7, 2021).
« With the sharp move down in interest rates last year, the population of zombie companies has markedly increased to a surprising level as firms have taken on more debt. The universe shown here is the Russell 3000, a mix of both large and small firms. Out of this universe of 3,000 firms, 692 were considered zombie companies (23%) this past January, an all-time high. »
« Some fairly recognizable large cap companies populate this list, including General Electric, Boeing, Dell, Kraft, a few major airlines, and one large cruise ship operator. »
« What I find surprising is that out of these 162 firms that carry an official rating 25 have a rating of “BBB” or higher, which is considered investment grade by the major credit rating agencies! » [2008 revisited??]
« The distribution of zombie debt in circulation is very top heavy. The top 10 issuers comprise almost 40% of the total amount. »
« If rates rebound up in a major way refinancing risk can elevate substantially. Given that much of this zombie debt is actually short or intermediate term paper, the refinancing need could certainly be there. »
« Lastly, all of the above is really no reason for investors to shun the entire corporate bond market, which is on the order of $10.5 trillion in aggregate. At $1.2 trillion, zombie debt is only around 10% of this total. »
Manuel Bleve wrote a post for The FInbox Blog titled Zombie Companies: Everything You Need To Know (June 14, 2020).
« A zombie describes a being that should technically be dead yet remains alive. A zombie company is similar – one that is heavily in debt but earns just enough to continue operating and service its debt (but not pay it off). As one would expect, such companies, just barely managing to scrape by… A small rise in interest rates, a decline in consumer spending, or a single poor quarterly performance and the company can become insolvent. »
« Since the 2008 financial crisis, the number of zombie companies had more than doubled by 2017 accounting for roughly 16% of the components of the Russell 3000. »
The post lists the names of 107 zombie companies.
Articles of Interest 