Private credit markets are experiencing renewed anxiety as artificial intelligence advances threaten to disrupt the software sector, a key borrower group for private lenders. The concerns surfaced after Anthropic launched new AI tools capable of performing complex professional tasks traditionally handled by software platforms, triggering a sell-off in shares of software data providers and sending shockwaves through the private credit industry. Investors reacted sharply, with major asset managers holding large private credit portfolios seeing steep declines. Ares Management dropped over 12%, Blue Owl Capital lost more than 8%, KKR fell nearly 10%, TPG declined about 7%, and Apollo Global and BlackRock each dropped over 1% and 5% respectively. In contrast, the S&P 500 fell just 0.1% and the Nasdaq slipped 1.8%, highlighting the outsized impact on private credit firms. The unease stems from the fact that enterprise software companies have long been a favored segment for private credit lenders since 2020. Many of the largest unitranche loans—combined debt structures popular in private credit—have been issued to software and tech firms. According to PitchBook, software accounts for about 17% of investments by deal count in U.S. business development companies (BDCs), second only to commercial services. This exposure raises alarm, especially as AI adoption accelerates. If software firms fail to adapt quickly, their revenue models could erode, weakening cash flows and increasing default risks. UBS Group has warned that in a severe disruption scenario, default rates in U.S. private credit could climb to 13%, significantly higher than the estimated 8% for leveraged loans and 4% for high-yield bonds. Jeffrey C. Hooke, a senior lecturer in finance at Johns Hopkins Carey Business School, noted that private credit stress predates the AI wave, with longstanding issues around liquidity and loan extensions. The new AI risks are just one additional layer on top of an already strained system. The sector’s opacity adds to the concern. JPMorgan’s Jamie Dimon previously warned about “cockroaches” in private credit—hidden problems that can spread quickly. The rapid rise in AI-related borrowing, high leverage, and lack of transparency are now seen as serious red flags. Kenny Tang, head of U.S. credit research at PitchBook LCD, said AI disruption could be a credit risk for some software borrowers, depending on whether they are leading or lagging in AI integration. He highlighted that software and services firms dominate payment-in-kind (PIK) loans—where interest is deferred—making them particularly vulnerable. If financial conditions deteriorate, these deferred payments can quickly turn into serious credit issues. Mark Zandi, chief economist at Moody Analytics, stressed that while the full extent of risk remains unclear due to the sector’s lack of transparency, the combination of rapid AI adoption, rising leverage, and opaque valuations represents a growing danger. He cautioned that while the industry may currently absorb losses, continued unchecked growth could overwhelm its resilience within a year.