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No, the U.S. Isn’t Being Overrun by Zombie Companies

New data from Goldman Sachs suggests that the amount of debt issued by undead companies in the junk-bond market actually fell in 2020.

Every one in this pic has been reanimated by low borrowing costs.
Photographer: JOHANNES EISELE/AFP

The zombies are coming! 

So say numerous reports arguing that the Federal Reserve’s unprecedented monetary stimulus has unleashed a wave of cheap money that’s resulted in an army of undead corporate entities. Companies that should have expired in the Covid-induced economic crisis have instead been able to reanimate and survive by borrowing billions in cheap money from undiscerning investors. In doing so, the suggestion is that they’re sucking credit away from ‘good’ businesses and sapping productivity from the economy overall. 

It’s fun and relatively easy to mount arguments that central banks are distorting markets and creating literal monstrosities. But in the case of zombie companies, it might also just be wrong. New analysis from Michael Puempel at Goldman Sachs argues that creative destruction is alive and well, at least in the U.S. market for junk-rated bonds. Rather than adding to the amount of zombies in existence, the chaotic events of 2020 have instead wiped a chunk of them out.

By Goldman’s calculations, the amount of junk-rated debt issued by zombie companies has dropped to its lowest level since 2009 thanks to a combination of defaults and central bank stimulus that has helped reduce borrowing costs and shift high-yield companies into the investment-grade bracket.

Zombie debt fell from $70 billion at the end of 2019 to just $30 billion at the end of 2020, Goldman says. In fact, the picture looks even better below the headline number as the vast majority of zombie debt now comes from just a handful of companies. The single-largest issuer accounted for a third of the entire zombie total at the end of 2020, according to Goldman’s estimates.