Zombies: Ranks of world's most debt-hobbled companies are soaring, and not all will survive

FILE - Shoppers enter exit a Bed Bath & Beyond store Monday, May 29, 2023, in Glendale, Colo. The big-box chain is staging store closing sales at its 360 locations after filing for bankruptcy in late April 2023. An Associated Press analysis found the number of publicly-traded “zombie” companies — those so laden with debt they’re struggling to pay even the interest on their loans — has soared to nearly 7,000 around the world, including 2,000 in the United States.

Added Miami investor Mark Spitznagel, who famously bet against stocks before the last two crashes: “The clock is ticking.” Already, the number of U.S. companies going bankrupt has hit a 14-year high, a surge expected in a recession, not an expansion. Corporate bankruptcies have also recently hit highs of nearly a decade or more in Canada, the U.K., France and Spain.

“We have people gambling in the public markets at an unprecedented level,” said David Trainer, head of New Constructs, an investment research group that tracks the cash drain on zombies. “They don’t see risk.”for years as interest rates fell but got a big push when central banks around the world cut benchmark rates to near zero in the 2009 financial crisis and then again in the 2020-21 pandemic.

But too many stock buybacks can drain cash from a business, which is what happened at Bed Bath & Beyond. The retail chain that once operated 1,500 stores struggled for years with a troubled transition to digital sales and other problems, but its heavy borrowing and decision to spend $7 billion in a decade on buybacks played a key role in its downfall.

Another zombie, JetBlue, suffered problems felt by many airlines, including the lingering impact of lost business during the pandemic. But it also was hurt by the decision to double its debt in the past decade and purchase hundreds of millions of dollars of its own stock. As interest costs soared and profits evaporated, that stock has dropped by two-thirds, and JetBlue has not made enough in pre-tax earnings to pay $717 million in interest over four straight years.

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Zombies: Ranks of world's most debt-hobbled companies soaring, not all will surviveThey are called zombies, companies so laden with debt that they are just stumbling by on the brink of survival, barely able to pay even the interest on their loans and often just a bad business hit away from dying off for good
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