Software companies face higher borrowing costs, tougher scrutiny as AI threatens businesses

By Matt Tracy and Saeed Azhar

Feb 23 (Reuters) - Software companies are delaying indebtedness deals arsenic higher borrowing costs and tougher scrutiny from lenders measurement connected the sector, astatine a clip erstwhile mounting unit from artificial quality threatens their concern models, manufacture sources said.

Software firms some successful the U.S. and elsewhere person already paused oregon postponed fundraising efforts arsenic ‌lenders and investors expect AI to upend the industry. These concerns person been underscored successful indebtedness markets, wherever spreads for risky companies person started to terms successful much defaults. AI ‌jitters besides affected backstage superior manager Blue Owl, whose shares slid aft its latest determination to merchantability $1.4 cardinal successful assets to instrumentality wealth to investors.

"We expect AI disruption hazard to beryllium progressively reflected implicit 2026 to aboriginal 2027, peculiarly for lower‑quality ​credit sectors with elevated refinancing needs — and much truthful successful the U.S. than successful Europe," said Matthew Mish, UBS' caput of recognition strategy.

Leveraged loans, particularly for U.S. tech companies, person begun to terms modestly higher defaults. UBS expects defaults to emergence 3% to 5% successful a script of quicker marketplace disruptions, compared with marketplace expectations for an summation of 1% to 2%.

"The disruption is going to play retired implicit 2 years," Mish said. "We yet deliberation that the marketplace volition terms successful a majority, but not each of the defaults that we're forecasting."

Even those companies whose indebtedness is deemed higher prime and little susceptible to the interaction of AI person ‌held disconnected connected tapping markets until trading levels recover, 1 banker said.

The ⁠market volition intimately ticker capitalist reception to Qualtrics, a well-established bundle shaper whose lenders volition beryllium successful the marketplace adjacent period to rise a $5.3 cardinal acquisition financing bundle for its acquisition of rival Press Ganey Forsta, a root acquainted with the substance said.

Qualtrics declined to comment. Press Ganey did not instantly respond to ⁠a Reuters petition for comment.

LEVERAGED LOANS

The imaginable disruption from AI is having a bigger interaction connected much leveraged indebtedness deals than high-yield enslaved deals, according to 2 bankers who declined to beryllium identified discussing transactions.

Technology manufacture borrowers, of which 60% are successful software, relationship for the largest information of leveraged loans, according to Brendan Hoelmer, caput of U.S. default probe astatine Fitch Ratings.

Tech loans correspond 17% of outstanding loans successful the leveraged market, valued astatine $260 billion.

Meanwhile, ​tech ​borrowers marque up conscionable 6% of outstanding high-yield bonds totaling $60 billion, Hoelmer noted. Of those, 70% are to bundle borrowers.