Stanley Druckenmiller has been widely quoted recently for his predictions at the NYC Grant’s Investment Conference of looming insolvencies and bankruptcies to be filed by any number of zombie companies: “Seriously, does anyone know why Sears is still in business?” He is right, the zombies have been lying in the weeds, sleeping, and are now slowly rising up, nudged awake by the ever so slight uptick in interest rates. Thriller, anyone?
So what is a zombie company? Those that have covered up their operational losses and market-share problems with free and easy capital. Those that are the Walking Dead, with no way to repay the debt levels they have incurred. Those that one day will have an immediate liquidity crisis which will start their rapid demise, their own unique Death Spiral. Those who must use 110% of their financial resources just to attempt to pay down debt, much less make capital improvements, or otherwise invest in the future. You would be amazed at the number of people who appear to wake up one day, seemingly just at that moment figuring out that they can’t make payroll tomorrow. I’m more amazed, every time, by the lenders who have forgotten the operational risks involved in the day to day running of a business.
Zombies are propped up by Other People’s Money. When Other People demand their money back, or refuse to add more, then the spookiness takes hold. When everyone starts running for the door, the Death Spiral dance begins in earnest.
Please don’t wait until the fires are burning out of control, and the mobs are circling. If you feel even a tiny ember, talk to your trusted financial and legal advisors about options, to see what preemptive steps you might take. Once a Death Spiral starts, it is extremely difficult to stop.
About DelCotto Law Group
DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about filing bankruptcy or DelCotto Law Group, please call (859) 231-5800 or email [email protected].