Before the launch of ChatGPT in 2022, lenders — especially then-triumphant private-credit firms — saw software companies as ideal borrowers, pairing speedy growth with the certainty of recurring subscription revenue. Both are now threatened by high interest rates and AI models that can code up substitute in-house tools.
After an M&A binge, private equity has now pulled back sharply, sending software deals to a decade low. Non-bank lenders have taken a nasty hit from high exposure to the industry, while healthcare has now claimed the top spot in U.S. broadly syndicated loan issuance for the first time since 2015, according to PitchBook.
Lenders seem to be charging software borrowers an AI risk premium. Recent refinancings for Proofpoint, Athenahealth and Cotality saw spreads, or the premium they pay over base rates, increase by between 50 and 150 basis points, PitchBook data show. Similarly rated borrowers in other industries did not need to pay more. Even within software, bids for application software loans have fallen more sharply than debt taken on by infrastructure, data software and cybersecurity firms.
Lender appetite will likely be tested further over the next few years. A big chunk of software loans mature in 2027 and 2028, according to S&P Global, posing a big and challenging wave of refinancing. As those loans come due, lenders will have to decide whether software cash flows remain as dependable as they once appeared.
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