Cineworld has signalled its intention to declare bankruptcy. Like many companies in the UK and elsewhere, the London-based cinema chain took on massive amounts of debt to expand. It is expected to use the Chapter 11 process in the US to restructure its debt and other obligations.
Variations of this story are set to be repeated again and again. With benchmark interest rates rising from the near-zero levels adopted by central banks over a decade ago, a reckoning is coming for all the “zombie” companies that are only able to pay the interest on their debts but never the principal. The same goes for individuals and governments in similar positions.
So far, central banks have only taken small steps to get inflation under control. The Bank of England has raised its benchmark rate from 0.1% to 1.75%, whereas until the financial crisis of 2008 it ranged from 5% to 15%. A return to normal would therefore suggest rates increasing to at least 5%.
