How large is the exposure

Estimates vary by how broadly "software" is defined, but the figures are sizable:

• Outstanding loans to SaaS firms grew from ~$8 billion in 2015 to over $500 billion by end-2025, representing ~19% of total direct loans . About a third of all private credit funds had extended loans to the sector .
• BDC-specific exposure: Business development companies — the most transparent segment of private credit — had lent roughly $115 billion to software firms, about a fifth of all BDC lending . Software names accounted for more than a quarter of all companies under credit pressure in BDC portfolios .
• UBS estimates that 25–35% of private credit portfolios face elevated AI disruption risk .
• The broader global private credit market stood at roughly $2.3–3 trillion in AUM as of 2025–2026 .

Caveat: KBRA notes that pure SaaS borrowers were only ~8% of new private credit loans originated in 2025, suggesting some of the headline "$500 billion+" figure may include software-adjacent or tech-enabled services, not just classic SaaS .

Signs of a retreat

• CLO managers offloading software loans. CLO managers have sold software loans at a discount to reduce exposure . Across leveraged loans, junk bonds, and CLOs, the selloff in software debt accelerated sharply in 2026 .
• Redemption surges and gating. Investor redemption requests from semi-liquid BDC vehicles spiked in late 2025 and continued through early 2026 . Blue Owl restricted redemptions in one of its credit funds; five of six major private credit funds blocked investor withdrawals in Q1 2026 in the largest "gating" wave since 2022 .
• Fund-raising shrinkage. Ares Management was forced to shrink a planned fund, and overall capital flows into private credit slowed .
• Lenders pivoting away from software. PitchBook notes that lenders are now actively shifting capital toward industries viewed as more insulated from rapid technological change .
• Distress markers climbing. By March 2026, 10.6% of companies in BDC portfolios showed credit pressure, with software representing the largest share of stressed names . Lower-middle-market loans showed 13% of loans trading below 90 cents on the dollar — an "alarming" distress signal .

Refinancing risks ahead

• A wall of maturities approaches. The massive buildup in software-directed loans from 2019–2022 is now approaching its maturity wall. Companies that borrowed at peak valuations on the assumption of continued high growth must refinance in a market where AI has made their business models less certain and lenders have pulled back .
• Low recovery expectations. Voya Investment Management warns that even though software loans are labeled "senior secured," they are likely to have very low recovery rates in a disruption scenario, because the primary collateral — recurring revenue streams — may deteriorate rapidly .
• Forecast default rates. Moody's stress scenarios project an 8–13% default rate range for AI-exposed private credit borrowers . The BIS has flagged that losses concentrated in the software sector could cascade through the private credit ecosystem if redemption pressures force asset sales into illiquid markets .
• "Amend-and-extend" masking true distress. Many lenders have extended maturities without marking loans to market, kicking the refinancing problem into future years and creating a "shadow default" overhang .
• Bifurcated market risk. Institutional direct lending is still functioning, but retail-facing semi-liquid BDC vehicles face a structural confidence crisis, making it harder for smaller software borrowers to roll over debt .

How large is the exposure

Estimates vary by how broadly "software" is defined, but the figures are sizable:

• Outstanding loans to SaaS firms grew from ~$8 billion in 2015 to over $500 billion by end-2025, representing ~19% of total direct loans . About a third of all private credit funds had extended loans to the sector .
• BDC-specific exposure: Business development companies — the most transparent segment of private credit — had lent roughly $115 billion to software firms, about a fifth of all BDC lending . Software names accounted for more than a quarter of all companies under credit pressure in BDC portfolios .
• UBS estimates that 25–35% of private credit portfolios face elevated AI disruption risk .
• The broader global private credit market stood at roughly $2.3–3 trillion in AUM as of 2025–2026 .

Caveat: KBRA notes that pure SaaS borrowers were only ~8% of new private credit loans originated in 2025, suggesting some of the headline "$500 billion+" figure may include software-adjacent or tech-enabled services, not just classic SaaS .

Signs of a retreat

• CLO managers offloading software loans. CLO managers have sold software loans at a discount to reduce exposure . Across leveraged loans, junk bonds, and CLOs, the selloff in software debt accelerated sharply in 2026 .
• Redemption surges and gating. Investor redemption requests from semi-liquid BDC vehicles spiked in late 2025 and continued through early 2026 . Blue Owl restricted redemptions in one of its credit funds; five of six major private credit funds blocked investor withdrawals in Q1 2026 in the largest "gating" wave since 2022 .
• Fund-raising shrinkage. Ares Management was forced to shrink a planned fund, and overall capital flows into private credit slowed .
• Lenders pivoting away from software. PitchBook notes that lenders are now actively shifting capital toward industries viewed as more insulated from rapid technological change .
• Distress markers climbing. By March 2026, 10.6% of companies in BDC portfolios showed credit pressure, with software representing the largest share of stressed names . Lower-middle-market loans showed 13% of loans trading below 90 cents on the dollar — an "alarming" distress signal .

Refinancing risks ahead

• A wall of maturities approaches. The massive buildup in software-directed loans from 2019–2022 is now approaching its maturity wall. Companies that borrowed at peak valuations on the assumption of continued high growth must refinance in a market where AI has made their business models less certain and lenders have pulled back .
• Low recovery expectations. Voya Investment Management warns that even though software loans are labeled "senior secured," they are likely to have very low recovery rates in a disruption scenario, because the primary collateral — recurring revenue streams — may deteriorate rapidly .
• Forecast default rates. Moody's stress scenarios project an 8–13% default rate range for AI-exposed private credit borrowers . The BIS has flagged that losses concentrated in the software sector could cascade through the private credit ecosystem if redemption pressures force asset sales into illiquid markets .
• "Amend-and-extend" masking true distress. Many lenders have extended maturities without marking loans to market, kicking the refinancing problem into future years and creating a "shadow default" overhang .
• Bifurcated market risk. Institutional direct lending is still functioning, but retail-facing semi-liquid BDC vehicles face a structural confidence crisis, making it harder for smaller software borrowers to roll over debt .