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.
Zombies are commonly defined as companies that have failed to make enough money from operations in the past three years to pay even the interest on their loans. AP's analysis found their ranks in raw numbers have jumped over the past decade by a third or more in Australia, Canada, Japan, South Korea, the United Kingdom and the U.S., including companies that run Carnival Cruise Line, JetBlue Airways, Wayfair, Peloton, Italy’s Telecom Italia and British soccer giant Manchester United.
As the number of zombies has grown, so too has the potential damage if they are forced to file for bankruptcy or close their doors permanently. Companies in the AP’s analysis employ at least 130 million people in a dozen countries. "Revenue went down, or didn't grow as much as projected, but that doesn’t mean they are all about to go bust," said Martin Fridson, CEO of research firm FridsonVision High Yield Strategy.
The difference for many zombies is they lack deep cash reserves, and the interest they pay on many of their loans is variable, not fixed, so higher rates are hurting them right now. Most dangerously, zombie debt was often not used to expand, hire or invest in technology, but on buying back their own stock.
“I was like, ‘How did this ever happen?’” said George Pettigrew, who held a tech job at the company's Nashville, Tennessee, headquarters. ”I was shocked at the amount of the debt.” In some cases, borrowed cash has gone straight into the pockets of controlling shareholders and wealthy family owners. A corner flag showing the logo of Manchester United is seen ahead of the English FA Cup 4th round soccer match between Manchester United and Reading at Old Trafford in Manchester, England, Saturday, Jan. 28, 2023.
The study did not take into account cash in the bank that a company could use to pay its bills or assets it could sell to raise money. The results would also vary if other years were used due to economic conditions and interest rate policies. Still, studies by both the International Monetary Fund and the Bank for International Settlements, an organization for central banks in Switzerland, generally support AP’s findings that zombies have risen sharply.
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