Private Credit's Biggest User Is in an Even Worse Place

Private credit managers are defending their industry amid investor concerns, arguing that loans to software firms from early 2020s leveraged buyouts face limited risk despite AI competition. The core claim hinges on debt structure: private equity owners—not lenders—bear initial losses if AI disrupts portfolio companies, shielding credit providers from the worst fallout. This defense emerges as AI-driven efficiency threatens traditional software business models, raising fears about overleveraged buyouts financed during low-interest periods. Investors are reevaluating exposure to private credit, prompting managers to emphasize downside protection via equity cushions in capital stacks. The strategy highlights a growing tension between private equity’s high-risk bets and private credit’s efforts to maintain stability in a rapidly evolving tech landscape.