The Meb Faber Show

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Edward Altman, NYU - We Had More Billion Dollar Bankruptcies In 2020 As Of September Of This Year Than Any Year Ever | #267

E267 • Nov 25, 2020 • 53 mins

In episode 267, we welcome our guest, Edward Altman, professor at the Stern School of Business at NYU. In today’s episode, we’re talking corporate bankruptcy, high yield bonds and credit risk analysis. We talk to Professor Altman about the Altman Z-Score Model, which he created in 1968 to predict bankruptcies. He discusses the record high debt levels companies had at the end of 2019 right before COVID hit the U.S. and what he’s seen this year with a large number of billion dollar bankruptcies. He also touches on the jump in the rate of zombie companies around the world.

Key Points

Professor Altman discussed how the Z-score model, created in 1968 to predict corporate bankruptcies, has evolved over time and remains a widely used tool in financial analysis, despite the record high debt levels companies had at the end of 2019 and the large number of billion-dollar bankruptcies in 2020.
The episode highlighted the increasing rate of "zombie companies" around the world and Professor Altman's bullish perspective on high-quality junk bonds, emphasizing the potential benefits of investing in them.
Professor Altman expressed concern over the unprecedented levels of corporate debt in 2020, fueled by government stimulus and low-interest rates, and the potential for a second wave of defaults and bankruptcies as these measures eventually taper off.

Follow Edward: Website

Resources: Altman Z-Score model (Altman) Covid-19 and the credit cycle (Altman) Corporate Financial Distress, Restructuring, and Bankruptcy: Analyze Leveraged Finance, Distressed Debt, and Bankruptcy

Speakers

Meb Faber

Host • 20%

Edward Altman

Guest • 79%

Chapters

0:00	Introduction to The Meb Faber Show and guest Edward Altman
3:56	Z score's evolution and its impact on credit scoring system
13:02	Overview of the leverage finance and average credit rating in the system
20:05	Discussion on the impact of corporate debt level at the end of 2019
27:16	Influence of government on markets and the unintended consequences of the Fed's actions
33:30	Global debt situation, its implications and a new measure of sovereign debt default risk
41:56	Possibility of negative yielding bonds in the US and the challenges for investors in a low yield environment
45:32	Reflection on the GM bankruptcy and the role of bailouts in company survival
49:32	Effect of government stimulus on bankruptcy filings
51:43	Edward Altman's most memorable investment and the emotions involved in portfolio management
52:54	Closing remarks, show notes, and end of podcast

Transcript

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