Software firms delay debt deals as lenders tighten amid AI fears

Team.blue postponed an extension of its €1.353 billion term loan maturing in September 2029 and delayed a repricing of a $771 million term loan, part of a growing wave of software companies pausing debt raises and refinancings as borrowing costs climb and lenders tighten underwriting.

Dealmakers and credit managers say the pause reflects a dual shock: higher interest rates that make refinancing more expensive, and mounting concern that generative AI could erode enterprise software revenues. Investors now price more default risk into riskier credits and are demanding tougher protections, a change that bankers say will show up in future loan documents.

"Future deals are also likely to include stricter covenants, or legal protections for investors, to get done," one banker said. "These include maintenance covenants, which force borrowers to keep their debt-to-earnings ratios below specific levels." That tightening increases refinancing complexity for companies with elevated leverage and near-term maturities, leaving some issuers weighing whether to push out deals or accept more onerous terms.

Market-level indicators underline the strain. Software makes up about 12 percent of credits in the Bloomberg U.S. Leveraged Loan Index, and data compiled by Nomura show software debt inside collateralized loan obligations has suffered the weakest total returns so far this year versus other sectors. Traders and asset managers have described the recent flow as severe, with Scott Macklin of Obra Capital saying, "A storm has hit the loan market."

The disruption has produced concrete market moves. Private capital manager Blue Owl sold $1.4 billion of assets to return capital to investors, a step that coincided with a slide in its shares. Craig Packer, co-president and head of credit at Blue Owl Capital, appeared on CNBC on the floor of NYSE American on February 20 as investor attention sharpened on credit exposure to software and other higher-risk sectors.

Deal calendars have also amplified pressure. Observers point to an unusually heavy repricing program and a large volume of bids wanted in competition, or BWICs, which together with AI questions prompted some participants to call the situation a "loan-ageddon" as supply outpaced demand for riskier paper.

The credit outlook varies by region and credit quality. Matthew Mish, head of credit strategy at UBS, warned that AI disruption risk is likely to be increasingly reflected over 2026 to early 2027, "particularly for lower‑quality credit sectors with elevated refinancing needs, and more so in the U.S. than in Europe." European loan markets have shown pockets of resilience, but the overall repricing and tighter lender scrutiny are global headwinds for software issuers.

For companies that must refinance soon, the options are narrowing: accept higher spreads and tougher covenants, seek alternative financing from private lenders, or postpone activity until markets stabilize. For investors and CLO managers, the immediate task is re-evaluating exposures to software names whose business models could face competitive pressure from advanced AI tools. The combination of rate-driven refinancing costs and technological uncertainty suggests the sector could see prolonged debt-market stress into 2026 and early 2027.