Dr. Edward I. Altman, Max L. Heine Professor of Finance, Emeritus at the Stern School of Business, New York University, joins Julia La Roche on episode 88 for an in-depth discussion on where we are in the credit cycle and the global phenomenon of zombie companies.
Dr. Altman is a renowned professor and researcher for his bankruptcy prediction and credit risk analysis work.
Dr. Altman earned his MBA and Ph.D. in Finance from the University of California, Los Angeles. He has been with NYU Stern School of Business since 1967.
He is most famous for developing the Z-Score formula in the late 1960s. The Z-Score is a financial model that uses historical data to predict a company's likelihood of bankruptcy. This formula is widely used by investors, financial analysts, and auditors as a tool for predicting corporate defaults and an aid in credit risk management.
Dr. Altman has published numerous books and articles on the topics of bankruptcy, corporate distress analysis, corporate financial restructuring, and credit risk. His work has had a significant impact on both academic finance and practical investment analysis.
Links:
Where We Are In The Credit Cycle: https://creditorcoalition.org/special-feature-professor-ed-altman-on-where-we-are-in-the-credit-cycle/
Wiser Funding: https://www.wiserfunding.com/
Corporate Financial Distress, Restructuring and Bankruptcy Book: https://www.amazon.com/Corporate-Financial-Distress-Restructuring-Bankruptcy/dp/1119481805/
NYU Stern: https://www.stern.nyu.edu/faculty/bio/edward-altman
0:00 Intro
0:49 Where are we in the credit cycle?
2:43 5 indicators (Default Rates; Recovery Rates, Required Rates of Return; Distressed Ratio; and Liquidity)
10:00 Is the market underestimating the near-term risk of defaults?
15:50 We’ve reached an inflection point
18:00 Historical default rates, benign credit cycles, and recession periods in the US
22:00 Warning of a great credit bubble in 2007
25:15 Why have defaults been so low?
28:20 Scenario of 10% default rates in credit markets?
33:30 Zombies and the Z-Score
39:40 Zombieism globally has increased from 1.5% to about 7%
44:00 Implications of keeping zombie companies alive
48:30 Why does the US have so many zombie companies?
50:00 Triple Cs risk of default
53:48 Bankruptcy v. Bailout
1:01:00 Bankruptcy reforms and impact on zombies
1:04:25 Zombies only increased slightly during Covid
1:06:30 What are people asking Dr. Altman on his lecture tour?
1:08:36 Starting a fintech called Wiser Funding
1:12:08 Parting thoughts
