Technology companies specializing in software are putting off major financing deals as concerns about artificial intelligence disruption make lenders more cautious and expensive to work with, according to industry experts.
The growing fear that AI will reshape or eliminate traditional software business models has prompted both domestic and international firms to halt fundraising efforts. Loan markets are already reflecting these concerns, with riskier companies seeing spreads that anticipate more bankruptcies ahead.
Matthew Mish, who leads credit strategy at UBS, expects the impact to intensify in the coming years. “We expect AI disruption risk 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,” Mish explained.
The financial institution anticipates default rates could climb between 3% and 5% if market disruptions accelerate, significantly higher than the 1% to 2% increase most market watchers expect.
“The disruption is going to play out over two years,” Mish noted. “We ultimately think that the market will price in a majority, but not all of the defaults that we’re forecasting.”
Even software companies with stronger credit profiles are avoiding debt markets while waiting for conditions to improve, according to banking sources.
Market observers will be watching closely when Qualtrics, an established software firm, seeks $5.3 billion in acquisition financing next month for its purchase of competitor Press Ganey Forsta. Both companies declined to provide comments.
The AI disruption concerns are hitting leveraged loan deals harder than high-yield bond transactions, two banking professionals said. Technology borrowers, with software companies making up 60% of that category, represent the biggest segment in leveraged lending.
According to Brendan Hoelmer from Fitch Ratings’ U.S. default research team, tech loans make up 17% of the leveraged loan market, worth approximately $260 billion. In contrast, technology companies account for only 6% of high-yield bonds, totaling $60 billion, with software firms representing 70% of that amount.
Morgan Stanley research shows that half of software sector loans carry “B- or lower” credit ratings, indicating elevated default risk. BNP Paribas analysts estimate that private credit exposure to software and services reaches about 20%.
Stock markets have also felt the AI impact, with software company shares leading the decline before spreading to other automation-vulnerable sectors. The software index has dropped 20% year-to-date.
While immediate refinancing pressure remains limited—with only 0.5% of software loans maturing this year—the situation becomes more pressing by 2027, when 6% of loans come due. High-yield software debt follows a similar pattern, with 0.7% maturing this year and 8% in 2027, Hoelmer reported.
Companies attempting to access debt markets are encountering substantially higher underwriting costs from banks, while lenders marketing these loans face increased investor skepticism.
Banking sources indicate that future deals will likely require higher yields and steeper discounts on existing debt. Companies are expected to return to markets once pricing conditions improve.
New transactions will probably include more restrictive covenants to attract investors, including maintenance requirements that force borrowers to maintain debt-to-earnings ratios below specified thresholds.
Several technology sector deals have been withdrawn or delayed since late January. European digital services company Team.blue postponed extending its 1.353 billion euro term loan and repricing its $771 million facility. The company declined to comment.
Currently, no leveraged loan deals for software companies are active, as firms and banks await recovery in trading levels for existing sector debt following late January losses when AI disruption fears intensified.
A January Moody’s Ratings analysis warns that lower-rated companies with approaching maturities “are likely to face greater refinancing and default risk in 2026.”
Jeremy Burton, who manages leveraged finance portfolios at PineBridge Investments, expressed caution about the sector’s near-term prospects. “I don’t really see software and business services as being hot sectors for issuance over the next year,” Burton said. “The technology is changing so quickly that you’ve really got to be confident.”
