Cloud 9fin How to fix a broken balance sheet
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Dec 11, 2024 Mike Harmon, a Stanford lecturer and managing partner at Gaviota Advisors, shares insights from his book on fixing broken balance sheets. He likens corporate debt dynamics to treating sick patients, explaining how even giants like Twitter can fall prey to high debt. The conversation explores the impact of meme stocks on vulnerable companies, while also discussing strategies for restructuring that highlight the balance between vision and practical tools. Harmon emphasizes the need for adaptability in today’s financial landscape, filled with challenges and opportunities.
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Zombie Companies
- Harmon defines a "zombie" company as one with too much debt to invest in future growth.
- He distinguishes between interest coverage and balance sheet insolvency as indicators.
Meme Stock Zombies
- Max Frumes mentions AMC and Bed Bath & Beyond as examples of "value zombies".
- These companies used meme stock status to increase volatility, highlighting the risk-shifting incentives of equity holders.
Restructuring Goals
- Harmon emphasizes the importance of starting with the desired end state when restructuring.
- He uses an Alice in Wonderland quote to illustrate this point.
