Private‑credit stress shows up in software narratives

The stress signal in software is not a wave of bankruptcies. It is a wave of debt that has to be refinanced between 2026 and 2028, just as lenders are getting less willing to believe every software company can keep expanding margins forever. (spglobal.com) (pitchbook.com) PitchBook said last month that 29% of rated Software and Services debt, or about $73 billion, matures within three years, with $59 billion due in 2028 alone. The same report said 53% of issuers in the sector sit at B-minus or in the triple-C category, which is the part of credit markets where refinancing gets expensive fast when sentiment turns. (pitchbook.com) Standard & Poor’s Global Ratings said three weeks ago that the pressure is showing up in private credit through valuation marks, weaker earnings at lender vehicles, and refinancing risk rather than an immediate jump in defaults. That is the key distinction: the first crack is often a lower loan price or a tougher renewal, not a missed payment. (spglobal.com) Software used to be a lender favorite because subscription revenue looked steady and gross margins looked fat. That made it easier for private equity firms to buy companies with borrowed money and assume they could refinance later on similar or better terms. (spglobal.com) (moodys.com) Artificial intelligence changed the story by attacking the part of the software pitch that mattered most to lenders: pricing power and future cash flow. Standard & Poor’s said two days ago that near-term displacement risk is higher in areas like software development tools, data visualization, and content creation, which makes 2027 to 2029 refinancing prospects more uncertain for speculative-grade names. (spglobal.com) The reason hyperscaler spending shows up in this story is simple. Microsoft, Amazon, and Alphabet are pouring tens of billions into data centers and artificial intelligence infrastructure, and that spending helps them bundle more computing power directly into cloud platforms that software vendors depend on and increasingly compete with. (microsoft.com 1) (microsoft.com 2) Microsoft’s own numbers show the tradeoff. In fiscal year 2025 fourth quarter results, Microsoft said its cloud gross margin percentage fell to 69% because of the cost of scaling artificial intelligence infrastructure, which shows how expensive the compute race has become even for the companies selling the picks and shovels. (microsoft.com 1) (microsoft.com 2) For smaller sponsor-backed software companies, that compute bill can land two ways at once. They may have to spend more to add artificial intelligence features just to keep customers, and they may have to cut prices or accept slower growth because customers can now get similar features from larger platforms. (spglobal.com) (pitchbook.com) That is why refinancing risk can damage a product before any default appears. If a company knows it must renegotiate debt in 12 to 24 months, management often preserves cash by trimming research, sales hiring, and customer support, which can weaken the product and make the next refinancing even harder. (spglobal.com 1) (spglobal.com 2) Standard & Poor’s said in February that United States maturities for B-minus-and-below debt will rise to $215 billion in 2028 from $56.6 billion in 2026. In that kind of market, lenders can still fund strong software businesses, but the old assumption that every recurring-revenue company can roll its debt at will is disappearing. (spglobal.com)