The cheap corporate financing and increasingly light debt covenants that have come with the accommodative monetary policy of recent months are starting to show up in S&P 500 Index companies. While investors have benefited from the rise in the equity markets, a number of these companies have fueled that growth by seeking out financing to cover daily expenses.
Now, as the economic slowdown has sunk in, some of those companies are not able to service portions of their debt — and have become what is known as a zombie company.
Since the start of the recession, the number of zombies with an interest coverage ratio of less than one has grown by 420%, according to Bloomberg. And their outright number has even exceeded the peak of the last two recessions.
Even more frightening: If the economy gets hit with more shutdown orders, expect more zombies to rise from the ground.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.
