Software Exposure in Leveraged Credit

The report examines the exposure of leveraged credit markets to the Software sector in the context of potential AI-driven business model disruption. It emphasizes that while refinancing risks are elevated due to 2028 maturity walls, credit performance will likely diverge based on business model resilience.

Key Takeaways

• 1.Leveraged finance and private credit markets have high concentration in Software, which faces risks from AI-related business model disruption.
• 2.Steep maturity walls in 2028 for software loans create significant refinancing risk, potentially acting as a catalyst for credit performance.
• 3.Market fears of low recovery rates in Software defaults may be overly simplistic, as historical data shows recoveries are not meaningfully divergent from broader loan averages.

Table of Contents

• Software Exposure in Leveraged Credit: The Potential Paths Ahead
• Not all Software is the same
• A growing divergence in Software credit and equity
• Near-term maturities are coming into view
• Potential responses to “right size” capital structures
• A more nuanced debate over loss severity
• Forecast dashboard: Spreads, returns, issuance, defaults, and ratings migrations
• Forecast dashboard: Relative value views
• Performance dashboard: Cash and synthetic markets
• Performance dashboard: Sectors

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