A growing number of junk-rated corporations including Delta Air Lines Inc. and Royal Caribbean Cruises Ltd. are losing money even before they pay interest and other necessary expenses like taxes, Bloomberg News reported. They’re covering those costs with cash they still have and with more borrowing in the bond and loan markets, where investors are willing to bet that companies will recover relatively fast after COVID-19 vaccines arrive. In the latest quarter, the number of junk-rated corporations that borrow in U.S. dollars and lost money before paying interest and other required expenses, known as having negative Ebitda, reached an eye-popping 47, according to a Bloomberg Intelligence analysis. That’s nearly double the level in the second quarter, out of a universe of about 600 borrowers. These companies are doing worse than many other zombies, or corporations that have losses after covering interest expenses. In this case, the businesses are losing money even before servicing their debt. If they don’t turn themselves around, some could be part of another wave of bankruptcies next year. For now, the Federal Reserve is helping these companies float along by keeping interest rates near zero and forcing investors that want decent returns to consider financing struggling businesses. But money managers won’t be willing to lend to weak corporations forever. Companies are trying to just hang on until life returns to normal.
