Marc Lipschultz

While there is an estimated $300 billion of private credit loans to software companies, there is more than $500 billion of private equity capital invested in those same companies subordinated in the capital stack. The typical private credit loan to sponsor-backed software companies is 30-40% LTV. So, in order to see material impairment in software private credit loans, the below private equity firms would need to see $500 billion+ of equity capital vapourized. I doubt that these firms will sit idly and wait for their investments to be disrupted by AI. But even if they do, it's doubtful that the private credit lenders will also do so once they get the keys handed to them. This scenario also ignores the fact that AI may be additive and accretive to software companies. In any event, an 80% impairment to all software companies due to AI, which is being priced in currently, seems like an improbable scenario but is currently assumed as baseline. This would be an extinction-level event for the private equity industry and decimate institutional portfolios.

95% of listed BDCs have reported Q3 results. While private credit remains mired in negative sentiment, third quarter results were broadly much better than expectations, with average non-accruals declining -10bps to 1.6%, while PIK increased +30bps to 8.3% NAV discounts remain widespread, with the median BDC trading at a -18% discount to NAV (-13.6% average). Below is a snapshot of our liquid private credit monitor (listed BDCs) if you want to comb through the wreckage.