'Zombie' companies rising from dead to threaten lenders

Research from KPMG has revealed an increasing amount of ‘zombie’ companies are emerging and causing severe problems for lenders.

The survey by the restructuring giants, which took into account the views of 400 ‘work out’ bankers, revealed that more and more zombie companies are appearing and make life hard work for lenders, as longer periods of time are spent attempting to find a solution to these cases than was occurring two years ago.

A zombie company is appropriately named, as it refers to those companies scraping an almost-worthless living, requiring constant support from lenders to avoid being killed off. These companies will typically be breaking even or even making a small profit. However, they don’t generate enough cash to repay borrowings, causing a massive headache for its lenders.

With the poor economic conditions and lukewarm demand across most sectors, lenders already bound in with zombie companies face the prospect of being owed large sums of cash for the immediate future. Zombies then become further dependent on its financiers, with light at the end of the economic tunnel fading fast.

There is also the very real prospect of a wave of insolvencies across the medium to long term if lenders become unable to shoulder the increasing weight of zombies.

It certainly seems that zombies and lenders both look likely to face problems as short term economic prospects remain bleak. It will be vital therefore that lenders continue to search out solvent solutions, to save money for themselves, whilst also giving zombies the chance to live and avoid being plunged any deeper into the mire.