The AI panic has officially spilled over from equities into credit.
Software companies are suddenly finding the debt markets closed—or prohibitively expensive—as lenders and private credit managers aggressively reprice the existential risk that AI poses to traditional B2B business models. With the software index down 20% YTD, the narrative has shifted from recurring revenue safety to terminal value risk.
📊 THE $260 BILLION EXPOSURE PROBLEM: The leveraged loan market is heavily exposed to the exact sector currently under the microscope.
- The Concentration: Technology accounts for 17% ($260 billion) of outstanding leveraged loans, with software making up 60% of that slice.
- The Quality: Morgan Stanley estimates that ~50% of these software loans hold a highly vulnerable “B- or lower” credit rating.
- The Default Risk: UBS projects defaults in this space could spike to 3% to 5% in a rapid-disruption scenario, well above the market consensus of 1% to 2%.
🛑 THE ISSUER REALITY CHECK: Lenders are hitting the brakes. European provider Team.blue recently postponed a €1.353 billion term loan extension amid the volatility. For companies that must tap the market, the new terms are punishing:
- Higher Yields & Steeper Discounts: Banks are demanding a much higher risk premium.
- Stricter Maintenance Covenants: A return to rigorous legal protections forcing borrowers to keep debt-to-earnings ratios in check.
⏱️ THE UPCOMING LITMUS TEST: While the immediate maturity wall is manageable (only 0.5% of software loans are due in 2026), all eyes are on the near future. The market will get its first major test next month when Qualtrics attempts to raise a massive $5.3 billion acquisition financing package for its purchase of Press Ganey Forsta.
💡 ANALYST TAKEAWAY: For the last decade, software was the darling of private credit and leveraged finance because of its sticky, recurring revenue streams. AI is now threatening the “stickiness” of those revenues. The companies that cannot clearly articulate how their software defends against—or incorporates—AI disruption will face a severe refinancing cliff as maturities peak in 2027.