Bloomberg/Lisa Lee/5-31-2022
“They are creations of easy credit, beneficiaries of central bank largesse. And now that the era of unconventional monetary policy is over, they’re facing a challenge like never before. They are America’s corporate zombies, companies that aren’t earning enough to cover their interest expenses, let alone turn a profit.”
USAGOLD note 1: What is surprising in this report is the number of household names listed as zombie companies. This crisis in the making echoes eerily the credit crisis of 2008, only on a significantly larger scale. Moreover, it arrives at a time when the Fed and public opinion are anathema to bailouts, raising the specter of a zombie-driven credit contagion.
USAGOLD note 2: The potential damage resulting from steady rate increases, given the current political mood, is very real and not something to gloss over. If the average interest rate on a company’s outstanding debt is 2% and it increases to 4%, its interest expense doubles – not a small matter for already wobbly companies that do not have the means to retire their over-sized debts. The impact on stock and bond markets could be substantial.
