^{Photo: Bloomberg.com}

AI Shakes Confidence in Software Loans

The $3 trillion private credit market is facing renewed uncertainty as artificial intelligence ramps up pressure on software companies, a major borrower base for private lenders. Last week, shares of software data providers plunged after AI firm Anthropic launched new tools capable of performing tasks traditionally sold by software companies. Investors are now questioning the resilience of private credit portfolios heavily exposed to these sectors.

The new AI capabilities threaten existing software business models by automating tasks and reducing the demand for paid solutions, potentially affecting borrowers’ cash flows and increasing default risks.

Asset Managers See Shares Drop

Asset managers with substantial private credit portfolios felt the impact immediately. Ares Management shares fell over 12%, KKR dropped nearly 10%, Blue Owl Capital lost more than 8%, and TPG declined around 7%. Even broader investment firms such as BlackRock and Apollo saw declines of 5% and 1%, respectively. For context, the S&P 500 fell just 0.1% and the Nasdaq dropped 1.8%.

The sell-off highlights growing concerns that private credit, with its illiquid and opaque loan structures, could face significant stress if software borrowers struggle to adapt to AI-driven disruption.

Private Credit’s Exposure to Software

Software companies have been a favored target for private credit lenders since 2020. Many of the largest unitranche loans—a combination of multiple loan types into a single structure—have gone to software and tech companies. According to PitchBook, software accounts for 17% of U.S. business development company (BDC) investments by deal count, second only to commercial services.

Jeffrey Hooke, senior lecturer at Johns Hopkins Carey Business School, said, “Private credit loans to a lot of software companies. If they start going south, there’s going to be problems in the portfolio.”

UBS warned that in an aggressive AI disruption scenario, default rates in U.S. private credit could climb to 13%, compared with 8% for leveraged loans and 4% for high-yield bonds.

Rising Risks from Loan Structures

Experts highlight that many private credit deals use payment-in-kind (PIK) loans, allowing borrowers to defer interest payments in cash. While this helps fast-growing software companies manage cash flow, deferred interest can quickly escalate into a credit problem if revenues weaken under AI-driven disruption.

Moody’s Analytics chief economist Mark Zandi described the sector’s rapid growth, rising leverage, and opaque structures as “yellow flags” signaling potential credit troubles. He noted that while private credit can currently absorb losses, the situation may deteriorate if lending continues aggressively.

Industry Responses

Some firms are attempting to mitigate risks. Ares Management CEO Michael Arougheti stated that software loans represent just 6% of the company’s total assets and less than 9% of its private credit assets under management. He emphasized that Ares lends primarily to profitable software companies with strong cash flow, maintaining low borrowing levels, which has helped keep problem loans near zero.

Other firms including Apollo, Blue Owl, TPG, and BlackRock did not provide immediate comments, while KKR declined to respond.

Outlook

As AI adoption accelerates, private credit managers must assess which borrowers are AI-ready and which may face disruption. The $3 trillion market’s exposure to software, combined with opaque lending practices and rising leverage, makes it one of the most closely watched sectors for potential credit stress in 2026. Investors and lenders alike are preparing for a period of heightened scrutiny and possible volatility.