Some businesses will struggle to access refinancing but at worst may face insolvency Spare a thought for Britain’s bankers. Facing a sea of troubles ranging from the sovereign debt crisis and the regulatory strictures of the Basle III through to the cost of miss-sold insurance, they have now identified a new cause for concern in the shape of so called zombie companies.
Ugly and unflattering, the term “zombie” entered the corporate lexicon in the early 2000s, in reference to businesses that were in constant need of life support from banks, investors or the government. Just as the zombies of Hollywood legend are the walking dead, their commercial counterparts are businesses that continue to trade and pay their bills while falling short of true viability.
Looked at from a banking perspective, a zombie is a company that is just about managing to pay the interest on its debts without making any inroads into the capital sum. In all probability it is a business that either breaks even or turns a small profit while lacking the financial wherewithal to pay down debt. In the short term that’s not necessarily a bad or unusual thing, but if the condition persists over years it is perhaps understandable that lenders begin to worry about their exit options.
According to a new report by accountants KPMG, banks are becoming increasingly concerned about the zombie company issue. Based on a poll of bankers that was initially conducted in the North of England and later expanded to cover London and the South of the country, the report suggests that lenders see tough times ahead for these marginal businesses. At best refinancing is likely to be more difficult, at worst the findings point to a rise in insolvencies.
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