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Why private equity is stuck with 'zombie companies' it can't sell
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5 signals and a flashing red light will tell us it’s time to sell
The 129 rate cuts central banks have delivered this year have pumped up markets, but problems in the public and private credit sectors just won’t go away.
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The weekend showed that you can’t escape Halloween in the suburbs of Australia’s big cities. So it’s only fitting that financial markets have also got a new demonic creature to fear – the army of zombie companies is on the march again.
Just weeks ago, JPMorgan chief Jamie Dimon warned that cockroaches in the private credit sector were likely to grow in number after the now infamous collapses of US car parts group First Brands and subprime auto lender Tricolor.
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What are Zombie Companies as they are back in America? 639 companies on life support as debt crunch bites
Zombie companies are back — and they’re multiplying fast. Across America, 639 firms can’t even pay their interest bills anymore. These “zombie companies,” tracked by Bloomberg through the Russell 3000 Index, just hit their highest count since late 2021. That’s 83 more firms turning into zombies in October alone. The reason? High interest rates that just won’t come down. For years, cheap credit kept weak companies alive. Now the easy-money lifeline is gone, and debt costs are crushing them.
The number of U.S. zombie companies—firms unable to cover their debt costs—has surged to 639, the highest since 2021, as rising interest rates pressure health and biotech sectors.
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