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Investors are becoming increasingly worried that AI will allow more companies and people to build their own custom software, reducing demand for off-the-shelf software products and services. A key fear is that AI will disrupt the software business models, with some investors recommending shorting AI-exposed credits and favoring junk bonds over leveraged loans due to the latter’s greater exposure to potential disruption.
“A storm has hit the loan market,” said Scott Macklin, head of US leveraged finance at asset manager Obra Capital Inc. “The heaviest calendar in months, largely repricing-driven but still overwhelming, has collided with mounting existential questions around software business models as AI reshapes the sector, which is the single largest in loans. Layer on an unusually heavy flow of BWICs [bids wanted in competition] and you have a full blown ‘loan-ageddon’.”
