A Bank of America report from July posits that the UK accounts for a staggering one third of all zombie companies in Europe. They represent 20% of all companies in the U.K, up four percentage points since March, according to a new paper by the conservative think tank Onward. In the two hardest-hit sectors — accommodation and food services, and arts, entertainment and recreation — the proportion of zombie firms has soared by 9 and 11 percentage points respectively, to 23% and 26%.
The number of zombie firms has shot up as companies have taken on huge volumes of fresh debt merely to weather the virus crisis while, in many cases, generating a lot less in revenues. Across the globe, non-investment grade companies issued $322 billion in the first eight months of this year — as much as in the whole of 2019, according to BIS data. At the same time, companies that were already zombies, instead of entering bankruptcy and having their debts restructured, have been bailed out by government and/or the central bank.
For their part, smaller companies have also taken on more bank loans, largely or completely backed by government. Many firms, particularly in the sectors most affected by the crisis, have lower revenues and weaker cash flow. As a result, the borrowed cash gets used up quickly but the debt remains. If they weren’t zombies before the Pandemic, they’ll be zombies going forward.What’s to Be Done Now with All These Zombie Companies? | Wolf Street