Analyst Sees ‘Zombie’ Bonds Proliferating: Structured Weekly

A growing number of securitizations are turning into what one analyst calls “zombies,” where the assets backing the bonds aren’t generating enough money to repay principal and investors can’t kill the deal off, a situation that can wallop bondholders.

The securities become zombies because it can be hard for investors to declare an asset-backed security to be in default, according to a report from Scott Hofer, an analyst at Income Research and Management, an investment management firm. As long as holders of the least risky portions of a securitization are getting their interest payments, a deal can often ...