According to the Bank of International Settlements (BIS), the official definition of a zombie company is a publicly traded firm that’s 10 years or older with a ratio of earnings before interest and taxes to interest expenses of below one. Put in simple terms, the company is paying more in interest than it earns. The original paper that actually coined this term was published just before the last financial crisis. Two versions of the paper came out. The first at the very peak of the last housing bubble in April 2006, and the second in September 2007, just before the beginning of the last bear market.

Today, almost nobody gives a second thought about zombie companies. They are a completely normal phenomenon. You’re considered strange for so much as batting an eye or frowning at one. That’s because money is so cheap that it’s barely even a challenge for a zombie company to take out another loan in order to refinance the last one and keep going in its zombie existence. If the money is available, then what else are they supposed to do?

Theoretically, these companies could liquidate assets, raise cash and try to shrink themselves down to something more manageable. That would be like cutting away the zombie rot and continuing on whatever healthy tissue was left, if any. Imagine how pissed off shareholders would be if any zombie company actually did this when interest rates were so low they could have paid off their shareholders and just kept going. Zombie companies are responsible to shareholders, and shareholders do not like it when their investments go sour.

Also according to the BIS, zombies account for 12% of all public firms today. In the S&P 500, it’s 14%. This compares to only 2% of companies back in the 1980’s. Why was the number so low back then and 7x higher now? Because it’s almost impossible to keep taking out new loans in order to pay back old ones when interest rates are upwards of 10% at the very least. So instead of taking out a new loan, they either shrink or die as someone else takes over their assets in a bankruptcy auction. Now getting a new loan is a piece of cake, so these companies remain zombies and just get bigger and bigger, but not healthier.