This study analyzes the most recent 10-Q or 10-K filings of 396 S&P 500 non-financial constituents (97% coverage) and finds that 27 firms (6.8%) report negative stockholders' equity — a Regime 3 condition where the classical debt-to-equity ratio is mathematically undefined. The Regime 3 cohort is not uniformly distressed: Consumer Discretionary alone contributes 11 of 27 firms (41%) primarily through aggressive share buybacks in franchise and asset-light operating models, whereas HCA Healthcare's 5-year equity trajectory (-0.93B USD FY2021 → -6.03B USD FY2025) exemplifies genuine leverage buildup. The study proposes a three-regime framework (Normal, Thin, Broken) and applies Cathcart, Dufour, Rossi, and Varotto (2020)'s 1.24-percentage-point large-firm annual default-probability gap across leverage quartiles — the correct benchmark for S&P 500 application, in contrast to the 2.87 pp SME figure frequently misattributed. Data sources include SEC EDGAR XBRL and FRED (2021-2026). The macro backdrop of a +275 bps 10-year Treasury shift accompanied by a 30 bps BAA credit-spread compression is shown to be consistent with investment-grade maturity management.
Danny Hwang (2026) studied this question.