Rising borrowing costs and increased scrutiny from lenders are weighing on the industry, causing software companies to delay debt deals as increasing pressure from artificial intelligence threatens their business models, industry insiders say.
Software companies in the U.S. and other countries have already paused or postponed fundraising activities as lenders and investors expect AI to transform industries.
These concerns have also been accentuated in loan markets, where spreads for riskier companies have begun to factor in increased defaults.
The AI worries also affected private capital manager Blue Owl, whose stock price fell after its latest move to sell $1.4 billion in assets to return money to investors.
Matthew Misch, head of credit strategy at UBS, said: “We expect AI-induced disruption risks to increasingly be reflected in 2026 and early 2027, particularly in lower-quality credit sectors where refinancing needs are increasing, more so in the US than in Europe.”
Leveraged loans, especially to U.S. tech companies, are starting to carry a slightly higher probability of default. UBS expects default rates to increase by 3-5% in a scenario of more rapid market disruption, compared with market expectations for a 1-2% increase.
“The disruption will continue for more than two years,” Misch said. “Eventually, we think the market will price in the majority, but not all of the defaults we expect will happen.”
Even companies with high quality debt that are considered less susceptible to AI are holding back on market development until trading levels recover, one banker said.
The market will be closely watching investors’ reception for Qualtrics, the venerable software maker that plans to lend to the market next month to raise a $5.3 billion acquisition financing package to acquire rival Press Gainey Forster Inc., the sources said.
leveraged loan
The potential disruption from AI is having a bigger impact on leveraged loan trading than on high-yield bond trading, according to two bankers who spoke on condition of anonymity to discuss the trades.
According to Brendan Holmer, head of U.S. default research at Fitch Ratings, 60% of technology industry borrowers are software-related, accounting for the lion’s share of leveraged loans.
High-tech loans account for 17% of leveraged market loans, amounting to $260 billion.
Meanwhile, tech borrowers account for just 6% of the $60 billion in high-yield debt outstanding, Holmer said. 70% of that is for software borrowers.
The majority of the software sector’s exposure is related to lower credit ratings, with Morgan Stanley estimating that 50% of loans carry credit ratings of ‘B or below’, indicating that these loans typically have a higher risk of default.
BNP Paribas analysts estimate that private credit’s exposure to software and services is around 20%.
U.S. stocks have also been disrupted by AI, with investors selling off shares of software companies, followed by companies in sectors susceptible to automation. The software index is down 20% since the beginning of the year.
Only 0.5% of the software sector’s outstanding loans are due this year, and 6% are due in 2027, Fitch’s Holmer said. On the high-yield front, only 0.7% of software debt matures this year, rising to 8% in 2027, he added.
Still, companies in the sector seeking to tap into the U.S. bond market face significantly higher costs of borrowing from banks to underwrite the bonds.
Banks selling the loans also face additional skepticism from potential investors, two bankers said.
Discussing the specific deal, the first banker, who declined to be named, said banks were likely to demand higher yields on new bonds and deep discounts on older bonds.
The first banker said companies would exit if prices improved.
Future deals are likely to include stricter contracts and legal protections for investors, the second banker said.
These also include maintenance covenants that force the borrower to keep debt return below a certain level, the banker added.
Several planned deals in the tech sector have been canceled or postponed since late January. European digital service provider Team.blue has postponed the extension of a 1.353 billion euro ($1.6 billion) term loan from September 2029 and the repricing of a $771 million term loan, the first bank official said. Team.blue declined to comment.
There are currently no leveraged loan deals for software companies as companies and banks wait for the sector’s existing debt trading levels to recover from losses since late January, when concerns about AI disruption rose.
Meanwhile, a Moody’s Ratings report published in January said lower-rated companies with maturities “likely to face greater refinancing and default risk in 2026.”
“I don’t really think software and business services will be a hot area for issuance over the next year,” said Jeremy Barton, a portfolio manager in the leveraged finance team at asset management firm PineBridge Investments. “Technology is changing rapidly, so we need to have confidence.”
