The landscape for private credit lenders has shifted dramatically, especially when it comes to software loans. After enjoying significant growth in this sector, lenders are now finding that attracting financing for legacy software credits has become increasingly difficult.
Key Trends
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Shift from Growth to Caution: Recent deals have mostly involved refinancing and extensions from existing lenders, reflecting a caution among private credit providers as they deal with a portfolio of stressed software loans.
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Volume Decline: Software companies made up 12% of all Private Equity (PE)-backed direct lending deals in 2026, down from 16% the year before. The decrease is even sharper in terms of volume—15% of direct lending volume this year compared to 22% last year.
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Selectivity in Financing: Lenders are now pickier, focusing on companies with lower leverage, higher pricing, or strong narratives about AI resilience.
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Recent Exceptions: There have been some notable financing successes, such as:
- Brookfield’s potential $800 million financing for the acquisition of Actimize.
- Comvest’s $350 million loan to Calero for debt refinancing, despite the company being vulnerable to AI disruptions.
- A $600 million financing for the merger of software companies Highspot and Seismic by Permira, which included unique covenants tied to annual recurring revenue.
Market Dynamics
- The growth of AI technologies has raised investor concerns regarding the sustainability of traditional software-as-a-service revenue models, leading to a decline in new financing deals.
- Existing software borrowers have increasingly sought amendments to extend loan maturities, as demonstrated by companies like Sophos and Proofpoint.
- There is an imminent concern regarding upcoming software loan maturities for existing private credit providers, with billions set to mature in 2027 and 2028.
Conclusion
Despite some isolated financing achievements, the overall trend indicates a more cautious and selective approach from private credit lenders in the software sector, driven by changing market dynamics and uncertainties related to AI advancements.
