Fundraising efforts that might have sailed through markets a year ago are now being delayed or scrapped. Lenders are demanding wider spreads, deeper discounts and stronger investor protections, particularly for lower-rated borrowers. At the same time, markets are beginning to price in the possibility that AI-driven disruption could translate into higher default rates over the next two years.
AI Risk Filters Into Credit Markets
Concerns about AI upending traditional software revenues are no longer confined to equity markets. They are increasingly visible in leveraged loans, where spreads for riskier borrowers have started to reflect expectations of rising defaults.
Matthew Mish, head of credit strategy at UBS, said AI disruption risk is likely to be increasingly reflected from 2026 into early 2027 — particularly in lower-quality credit sectors with heavy refinancing needs, and more acutely in the U.S. than in Europe.
UBS expects defaults to rise 3% to 5% in a scenario of faster market disruption, compared with broader market expectations of a 1% to 2% increase. “The disruption is going to play out over two years,” Mish said, adding that markets will price in a majority — but not all — of the defaults UBS forecasts.
Even higher-quality borrowers, viewed as less vulnerable to AI-driven change, are waiting for secondary market trading levels to recover before tapping debt markets, according to bankers involved in recent transactions.
Qualtrics Deal Seen as Market Test
Investors are watching closely how markets receive a major financing expected next month. Qualtrics is preparing to raise a $5.3 billion acquisition financing package to fund its purchase of rival Press Ganey Forsta.
Market participants see the deal as a litmus test for appetite toward established software credits in the current environment. Qualtrics declined to comment, while Press Ganey did not immediately respond to requests for comment.
Leveraged Loans Feel the Strain
The impact of AI concerns has been more pronounced in leveraged loans than in high-yield bonds, according to bankers active in the market.
Technology borrowers — 60% of which are software companies — represent the largest share of the leveraged loan universe, said Brendan Hoelmer, head of U.S. default research at Fitch Ratings. Tech loans account for 17% of outstanding leveraged loans, or about $260 billion.
By contrast, tech borrowers make up just 6% of the $60 billion outstanding high-yield bond market. Of that portion, roughly 70% is tied to software issuers.
A significant portion of software-sector loan exposure sits in lower credit tiers. According to estimates from Morgan Stanley, 50% of the sector’s loans carry a “B- or lower” rating — typically associated with higher default risk. Analysts at BNP Paribas estimate private credit exposure to software and services at around 20%.
Equity Markets Echo the Unease
The turbulence is also visible in equities. The S&P 500 Software & Services Index is down 20% so far this year, underperforming the broader S&P 500 as investors rotate away from companies perceived as vulnerable to automation or AI displacement.
Maturities Loom in 2026–2027
While near-term maturities are limited — just 0.5% of outstanding software-sector loans are due this year, with 6% maturing in 2027 — pressure builds further out. On the high-yield side, 0.7% of software debt is due this year and 8% in 2027, Fitch data shows.
Lower-rated companies with upcoming maturities are likely to face greater refinancing and default risk in 2026, according to a January report from Moody's Ratings.
Tougher Terms, Fewer Deals
Companies attempting to issue debt in the U.S. have encountered meaningfully higher underwriting costs. Banks marketing new loans report increased skepticism from investors, leading to demands for higher yields on fresh debt and steeper discounts on existing loans.
Future deals are also expected to carry stricter covenants — including maintenance covenants that require borrowers to keep debt-to-earnings ratios below defined thresholds — in order to secure investor backing.
Several transactions have already been shelved. European digital services provider Team.blue postponed plans to extend its €1.353 billion term loan due September 2029 and to reprice a separate $771 million term loan.
For now, there are no active leveraged loan deals for software companies, as banks and issuers wait for secondary market levels to stabilize after losses that began mounting in late January, when AI disruption fears intensified.
Jeremy Burton, a portfolio manager on the leveraged finance team at PineBridge Investments, summed up the mood: “I don't really see software and business services as being hot sectors for issuance over the next year. The technology is changing so quickly that you’ve really got to be confident.”
As AI advances at breakneck speed, lenders appear unwilling to extend capital without greater compensation for risk — or clearer visibility into how the next phase of disruption will unfold.