Thoughtful READ…..More than 7000 companies globally, employing 130 million people, can't pay back loans and are drowning in debt
6/21/2024
More than 7,000 companies globally, employing 130 million people, can't pay back loans and are drowning in debt, per AP.
They are called zombies, companies so burdened with debt that they are barely surviving, just able to pay the interest on their loans, and often one bad business hit away from shutting down for good.
An Associated Press analysis found that their numbers have surged to nearly 7,000 publicly traded companies worldwide — 2,000 of which are in the United States. These companies have been whiplashed by years of accumulating cheap debt, followed by persistent inflation that has pushed borrowing costs to decade highs.
Now, many of these mostly small and mid-sized struggling companies could soon face their day of reckoning, with due dates looming on hundreds of billions of dollars of loans they may not be able to repay.
“They’re going to get crushed,” said Valens Securities Managing Director Robert Spivey, referring to the weakest of the zombies.
Investor Mark Spitznagel, known for betting against stocks before the last two crashes, added, “The clock is ticking.”
Zombies are typically defined as companies that have failed to generate enough money from operations over the past three years to cover even the interest on their loans. The AP’s analysis found that their numbers have jumped by a third or more over the past decade in countries like Australia, Canada, Japan, South Korea, the United Kingdom, and the United States. This includes companies running Carnival Cruise Line, JetBlue Airways, Wayfair, Peloton, Italy’s Telecom Italia, and British soccer giant Manchester United.
To be sure, the total number of companies has increased over the past decade, making comparisons difficult. However, even when limiting the analysis to companies that existed a decade ago, the number of zombies has risen nearly 30%.
These companies span various sectors, including utilities, food production, technology, healthcare (such as hospitals and nursing home chains), and real estate, with many struggling due to half-empty office buildings in major cities.
As the number of zombies has grown, so has the potential damage if they are forced to file for bankruptcy or shut down permanently. The companies in the AP’s analysis employ at least 130 million people across a dozen countries.
Already, the number of U.S. companies going bankrupt has reached a 14-year high, a surge typically expected in a recession, not an expansion. Corporate bankruptcies have also recently hit decade or more highs in Canada, the U.K., France, and Spain.
Some experts believe zombies might avoid layoffs, selloffs, or collapse if central banks cut interest rates, as the European Central Bank has started doing this week. However, scattered defaults and bankruptcies could still drag on the economy. Others think the pandemic temporarily inflated the ranks of zombies and that the impact will be short-lived.
AI
