Part 7/16:
The Proliferation of Zombie Companies and Credit Market Strains
Many companies are stuck in “zombie” status—profitable enough to cover interest costs but unable to generate sufficient profits to repay debt principal—thus requiring ongoing restructuring. Despite efforts, many are still filing for bankruptcy, with creditors recovering less than half of owed amounts, compared to standard insolvency proceedings.
The credit markets reflect growing concerns: high-yield credit spreads have widened sharply, with bond investors demanding higher yields to compensate for increasing risks. This indicates widespread apprehension over corporate defaults. Similarly, treasury yields have remained elevated, signaling investor worry about US government creditworthiness and potential default risks.