US EditionSoftware companies face higher borrowing costs, tougher scrutiny as AI threatens businesses
Lenders expect defaults to rise 3-5%, prompting software firms to postpone debt deals amid AI-driven business model disruptions and tighter borrowing terms.
- This year, software companies have paused fundraising and debt deals as lenders and investors price AI disruption risk, with no leveraged loan deals as banks and issuers await trading recovery.
- Lenders and investors expect AI-driven disruption, pricing modestly higher default risk into leveraged loans amid concerns AI will upend software business models over a two-year disruption timeframe.
- Tech loans represent 17 in the leveraged market, valued at $260 billion, with 60% of borrowers in software and 50% rated B- or lower.
- Companies face significantly higher borrowing costs from banks, with several tech deals pulled or delayed since late January as loan marketing faces more scepticism and future financings demand maintenance covenants.
- Analysts warn defaults could climb 3 to 5 per cent under rapid disruption as Moody's Ratings flags higher refinancing risk for lower-rated firms in 2026, keeping issuance subdued next year.
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Channel News Asia
Software companies face higher borrowing costs, tougher scrutiny as AI threatens businesses
Feb 23 : Software companies are delaying debt deals as higher borrowing costs and tougher scrutiny from lenders weigh on the sector, at a time when mounting pressure from artificial intelligence threatens their business models, industry sources said.Software firms both in the U.S. and elsewhere have already p
Focus: Software companies face higher borrowing costs, tougher scrutiny as AI threatens businesses
Software companies are delaying debt deals as higher borrowing costs and tougher scrutiny from lenders weigh on the sector, at a time when mounting pressure from artificial intelligence threatens their business models, industry sources said.
Artificial intelligence has been presented to us as the engine that would strengthen enterprise software. More efficiency, more automation, higher margins. That narrative is beginning to crumble. The new generation of AI not only complements existing tools, in many cases it directly executes tasks that previously justified the existence of specific applications. This shift is already reflected in… Origin
We continue to talk about how badly the software industry is going through with the boom of AI, which translates into financing problems, access to money and real refinancing risk. As a context, we had already indicated that the software industry had lost more than $2 trillion in value in recent weeks. The reason for this is the fear of investors "being on the wrong side" in the face of the disruption of AI. And it is that AI has already begun t…
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