Software issuers are putting planned debt transactions on hold as rising borrowing costs and increased lender caution converge with investor worries about how artificial intelligence may alter the industry's outlook, according to industry contacts. The pause has affected issuers across the U.S. and internationally, with some firms postponing or shelving fundraising initiatives while underwriters and investors reassess credit risk.
Market participants say that concern about AI-driven disruption has been most visible in loan markets, where spreads for riskier credits are beginning to reflect a higher probability of defaults. The contagion in investor sentiment has extended beyond public equities into the private credit universe and into the share price of at least one manager: private capital firm Blue Owl saw its stock fall following its announcement to sell $1.4 billion in assets to return cash to investors.
Matthew Mish, UBS' head of credit strategy, warned that AI disruption risk is likely to be more apparent over the course of 2026 to early 2027, and that the effect will be stronger in the United States than in Europe. He said UBS is modeling a downside scenario in which defaults rise by 3 percent to 5 percent if market disruptions accelerate, compared with market expectations that put a more modest rise of 1 percent to 2 percent.
"The disruption is going to play out over two years," Mish said. "We ultimately think that the market will price in a majority, but not all of the defaults that we’re forecasting."
Even companies seen as having higher-quality debt profiles are reluctant to enter the market until prices stabilize. One banking source said issuers are awaiting a recovery in trading levels before moving ahead with new deals.
Investor reception to upcoming financings will be closely watched. Lenders for Qualtrics are scheduled to syndicate a $5.3 billion acquisition financing package linked to its acquisition of rival Press Ganey Forsta, according to a person familiar with the plans. Qualtrics declined to comment. Press Ganey did not immediately respond to a request for comment.
Leveraged loan dynamics and concentration in software
Bankers involved in transactions say that potential disruption from AI is exerting a heavier influence on leveraged loan activity than on high-yield bond issuance. That dynamic is particularly relevant because the technology segment accounts for a large share of the leveraged loan market and a disproportionate share of issuance risk.
Brendan Hoelmer, head of U.S. default research at Fitch Ratings, noted that 60 percent of technology borrowers are in software. Tech loans make up 17 percent of outstanding leveraged loans, a stock valued at $260 billion. By contrast, technology borrowers represent only 6 percent of outstanding high-yield bonds, which total $60 billion; of those high-yield tech bonds, 70 percent are issued by software companies.
Within the software loan universe, a large portion of exposure sits at low credit grades. Morgan Stanley estimates that half of software loans carry credit ratings of B- or lower, a category that conventionally indicates elevated default risk. BNP Paribas analysts estimate private credit exposure to software and services at about 20 percent.
Equity markets have reflected similar pressures. Investors began selling software shares, followed by companies in sectors that are considered vulnerable to automation. The software equity index has fallen 20 percent so far this year.
Maturities, refinancing risk and market mechanics
Despite the recent volatility, near-term maturities in the software debt stock are limited. Hoelmer said only 0.5 percent of outstanding software sector loans are due this year, and 6 percent are scheduled for 2027. On the high-yield side, 0.7 percent of software debt matures this year, rising to 8 percent in 2027.
Nonetheless, borrowers that have attempted to access U.S. debt markets have encountered materially higher costs. Banks arranging such deals are charging greater fees to underwrite loans, and they report encountering heightened skepticism from potential institutional investors. One banker said that arrangers are likely to seek higher yields on newly underwritten debt and to demand steeper discounts on earlier tranches to get transactions across the line.
Deal documentation is expected to become more protective of investors. Market participants said future loans are likely to include tougher covenants, including maintenance covenants that require borrowers to keep debt-to-earnings ratios below pre-set thresholds.
Since late January, several planned technology financings have been postponed or pulled as AI disruption fears intensified. One example cited by a banker involved European digital service provider Team.blue, which delayed both an extension of a 1.353 billion euro term loan that had been due in September 2029 and a repricing of a $771 million term loan. Team.blue declined to comment.
Currently, there are no leveraged loan transactions in the pipeline for software companies, a sign that issuers and banks are waiting for existing debt trading levels to recover from losses recorded since late January.
Credit outlook and issuer sentiment
Ratings agencies and market managers are flagging elevated risks for lower-rated issuers. A Moody's Ratings report published in January warned that lower-rated companies with upcoming maturities are likely to face greater refinancing and default risk in 2026.
Reflecting caution among institutional investors, Jeremy Burton, a portfolio manager on the leveraged finance team at asset manager PineBridge Investments, said he does not expect software and business services to be active sectors for issuance over the next year. "The technology is changing so quickly that you’ve really got to be confident," he said.
With borrowing costs higher, investor wariness elevated and a significant portion of software debt rated at lower credit grades, the market environment has pushed many issuers to stay on the sidelines until conditions improve or until protective features and yield levels are sufficient for lenders and investors.
Currency conversion used in market references: $1 = 0.8482 euros.