Key Takeaways:
Private software loans were already deteriorating before the SaaS-pocalypse triggered by Anthropic's Claude Cowork launch in January, and the worst may not yet be reflected in the opaque $2 trillion private credit market.
The share of private software debt valued at less than 80 percent of its original face value hit a five-year high of 6.1 percent at the end of September 2025, according to an MSCI analysis of $73 billion in institutional investor holdings. That was roughly five months before software stocks tumbled on fears that artificial-intelligence agents could render traditional tools obsolete, sending the iShares Expanded Tech-Software Sector ETF down 24 percent in the first quarter of 2026.
"The data lags there are keeping us in suspense," said Patrick Warren, head of private-credit research at MSCI. He estimated it can take private markets two full quarters to price in developments that public markets absorb instantaneously, meaning the first-quarter 2026 MSCI data — not yet available — will be the first to capture the Claude Cowork effect.
The markdowns climbed from 4.8 percent over the first nine months of 2025 before dipping to 4.7 percent in the fourth quarter, still above the five-year quarterly average of 4.4 percent. Software debt has become an increasingly central part of private-credit portfolios, rising to 17 percent of institutional investor debt in MSCI's data set by the end of last year from 12 percent in 2019. At four major business-development companies geared toward individual investors, software exposure averages about 25 percent, the Wall Street Journal has found.
The pre-existing stress reflects a hangover from the pandemic-era boom. Many of the loans were issued after Covid-19 hit, when employers adapting to remote work spent heavily on new tools, lifting software sales, said Gil Luria, head of technology research at D.A. Davidson. Software firms borrowed against those revenues, often at the behest of private-equity owners. When employers eventually cut back, the debt remained.
"Software companies were taken private with very high leverage assuming those revenues would keep recurring forever even though the private-equity managers also cut costs at all these companies," Luria said.
The delayed repricing means the private credit market faces a potential second wave of losses. Concerns that AI agents like Claude Cowork will displace traditional software-as-a-service tools have already triggered investor redemptions from BDCs. The SaaS-pocalypse selloff erased nearly a quarter of the value of the software-sector ETF in the first quarter, though it recovered 13 percent in the second.
Some of the stress is already visible in individual fund disclosures. Blackstone Secured Lending Fund marked down to 80 percent a loan to healthcare company Navigator Acquiror that represents 3.5 percent of the fund's net asset value. Defaults by software maker Medallia and dental-service company Affordable Care contributed to a $560 million write-down at KKR's FS KKR Capital, equivalent to 10 percent of the fund's net asset value.
Apollo Chief Executive Marc Rowan and Blackstone President Jon Gray have said that fears of broad stress in private credit are overblown. The MSCI data did not show significantly better performance for funds run by more experienced managers, though large funds contained less marked-down debt than small ones.
"Smaller funds tend to lend to smaller borrowers who are more susceptible to stress in a higher rate environment or a tougher macro environment," Warren said.
The broader private credit market is showing cracks beyond software. The share of healthcare debt marked down more than 20 percent hit a five-year high of 7.4 percent last year, while loans to consumer-discretionary companies suffered their worst markdowns since early in the pandemic. With the SaaS-pocalypse impact still working its way through private valuations, the second half of 2026 will reveal whether the $2 trillion market faces a systemic repricing or a contained correction.
This article is for informational purposes only and does not constitute investment advice.
