By Andres Pinter
About the author: Andres Pinter is senior managing director of turnaround and restructuring at Ankura, a management consulting firm.
In a well-circulated report this month, UBS researchers estimated up to 35% of private credit portfolios faced elevated risk of AI disruption. They pointed to the fact that technology firms account for approximately 24% of holdings at business development companies, which are the publicly traded vehicles in which much of private credit is held. Software companies will soon face catastrophe caused by AI, and private credit will follow suit, so their logic goes.
Once the press picked up this narrative, the momentum crowd was sold and the fallout swift. Blue Owl halted redemptions at a private credit fund targeted at retail investors on Thursday. A doomsday report published Sunday by Citrini Research only deepened anxieties, tanking the stock of software firms, including CrowdStrike, and private-equity firms, such as Blackstone and KKR. The story about private credit and software the market is trading on, however, is mostly wrong.
The private credit lenders who issue loans to software firms aren't sitting in a dark room waiting for the apocalypse. They are sitting across the table from sponsors who have every incentive to fix these companies quietly and actively manage against a maturity schedule that gives them considerably more runway than the market seems to understand.
When a private credit fund makes a loan to a software company, it betting that the company will exist forever. It's making a bet that the company will exist long enough to pay back the loan. Those are very different bets, and right now the market is confusing them.
AI will eventually disrupt mid-market software. The question for markets to consider is whether it will do so completely and catastrophically before private credit's loans to those software companies mature. The contractual maturity on a new loan averages around five years; if you believe the coming disruption will be faster than that and that it will bring total destruction, you have a much bigger problem than your private credit portfolio.
Technology doesn't kill companies overnight. It kills them slowly, then all at once -- but the "slowly" part matters enormously if you are a lender rather than an equity holder. A software company losing customers to AI doesn't go dark on a Tuesday. Revenue erosion unfolds over years. That is painful for an equity investor. For a lender, it can still mean years of visible contractual cash flow sitting in front of the maturity date. The loan gets paid. The equity gets wiped. Those are two different outcomes that the market is currently treating as one.
Private-equity firms don't abandon portfolio companies gracefully. They have fund economics, investor relationships, and hard-won reputations that make fighting for these assets the rational move. The private equity industry is sitting on roughly $1.7 trillion in dry powder globally. When a software company starts showing stress, a private equity fund may cut costs or inject capital. They may find a strategic buyer who wants the customer relationships, even if the product is weakening. The loan gets taken out in a sale process, not a bankruptcy. The equity cushion that everyone is ignoring does real work here.
Private credit managers have another solution available to them that is so obvious and boring it apparently hasn't occurred to anyone participating in this month's stock selloff. If a manager genuinely believed AI was going to devastate their software book, they could simply stop making new software loans. They would let their existing portfolio run off. Three to four years from now, their exposure is largely gone. No fire sale, no systemic crisis. Just time doing what time does to short-duration assets.
Credit is ultimately a duration business. Refinancing risk emerges at maturity. Even accepting elevated default assumptions, the loss severity implied by current share price moves would require recovery rates far below historical experience for senior secured lending, which has averaged 60 to 80 cents on the dollar across multiple credit cycles, including the 2008-09 global financial crisis. To justify where some of the hard-hit stocks are trading, you would need to believe that software companies will go bankrupt en masse, that sponsors won't defend them, and that lenders will recover pennies on senior secured paper.
When credits do go sideways, they usually don't go to zero. Instead, they go into restructuring. A restructuring professional doesn't see a dead company: They see a cash flow management problem. They cut costs aggressively, run out the revenue stream, and use every dollar of incoming cash to pay down the loan before the terminal decline arrives. The market is pricing outcomes that would require these companies to simply vanish, debts unpaid, into the AI-disrupted void.
Disruption and destruction is coming to private credit. AI will accelerate the timeline for implosion of the weakest credits at the weakest managers. Interest coverage ratios across private credit borrowers have fallen materially since 2021 as higher rates have worked through capital structures. But that's an argument for sharper manager selection, not for indiscriminate selling across the asset class.
The losses, when they come, will be more contained than the current selloff implies. They will be concentrated in the funds that were already making mistakes before AI gave them a new way to make them. AI is going to change a lot of things. The math on private credit loans probably isn't one of them.
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February 24, 2026 11:40 ET (16:40 GMT)
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