We all know software stocks have entered a bear market in 2026. But the debt side of software might end up being a much bigger deal.
IGV is down 23%+ year-to-date. $285 billion in market cap wiped out in a single day. Software P/S ratios compressed from 9x to 6x — levels we haven’t seen since the mid-2010s. But it’s more than just stocks going down.
It puts huge stress on private credit’s $600-750 billion exposure to software companies. On the ability for that debt to be reliably repaid.
And it could end up being a much bigger problem than falling stock prices.
The individual stories are brutal. Figma IPO’d last July at $33, briefly traded near $143, and as of this week is around $24 — down more than 80% from its high and roughly 25% below its IPO price, despite growing revenue 40% year-over-year. Navan IPO’d at $25 in October and is now around $10.20 — down 60% in under four months. A law firm is already investigating.
Everyone’s talking about the SaaSpocalypse. The death of per-seat pricing. AI agents replacing software users. And yes, all of that is real and I’ve written about it.
But the quiet risk — the one almost nobody in B2B is talking about — is what happens to the $3 trillion private credit market that underwrote a decade of software buyouts. Because if those loans start going bad at scale, it doesn’t just hurt PE firms. It tightens credit for everyone. Venture debt. Growth rounds. M&A exits. The entire financial plumbing behind B2B.
First, Some Context on What’s Actually Happening
The $3 trillion private credit market — the shadow banking system that financed a decade of software buyouts — has software as its single largest sector exposure. Roughly 20-25% of all private credit deals are SaaS companies, according to 9fin. UBS puts the AI-disruption-exposed share even higher, at 25-35%.
How did we get here? Simple. From 2015 to 2025, more than 1,900 software companies were acquired by private equity in deals worth over $440 billion. The thesis was irresistible: sticky recurring revenue, high margins, predictable cash flows, high switching costs. Private credit loved lending against those characteristics. Software became the engine of the entire unitranche loan market.
The problem is that every single one of those assumptions is now being stress-tested by AI. Simultaneously.
The Software Companies That Went Private — and the Debt They Took On
To understand the scale of the risk, look at the major software take-privates of 2022-2025 and the debt that financed them. These are among the largest leveraged buyouts in software history, and their debt is sitting across the private credit ecosystem:
- Citrix — Taken private by Vista Equity Partners and Evergreen Coast Capital for $16.5B. ~$15B debt package. Banks lost $600M+ trying to syndicate the loans at steep discounts. Merged with Tibco Software.
- Zendesk — Taken private by Hellman & Friedman and Permira for $10.2B. ~$4.6-5B in private credit financing led by Blackstone. Now using AI to generate $200M+ in ARR from its own AI offering.
- Coupa Software — Taken private by Thoma Bravo for ~$8B. Debt-to-equity ratio approaching 65:35. Significant layoffs post-acquisition (reportedly up to 30% of workforce). Traded at nearly 60x earnings pre-buyout.
- Anaplan — Taken private by Thoma Bravo for $10.7B. Loans currently trading near par (~99-100) on secondary markets.
- Avalara — Taken private by Vista Equity Partners for $8.4B. ~$2.5B in private credit financing led by Blue Owl Capital.
- Smartsheet — Taken private by Vista Equity Partners and Blackstone for $8.4B in late 2024. Loans recently on private credit secondary bid/offer lists.
- Hyland Software — Taken private by Thoma Bravo. Loans appearing on JPMorgan’s private credit secondary trading lists.
- Finastra — Vista Equity Partners portfolio company. Placed a $2.95B first-lien term loan and $500M second-lien in July 2025. Loans recently fell from high 90s to ~93-94.5 as software sentiment soured.
- Pluralsight — Taken private by Vista Equity Partners for $3.5B. Wells Fargo cited Pluralsight as an example of a “keys handover” — where lenders take control from sponsors. A preview of what’s ahead.
In the boom times, companies like Coupa and Cloudera traded at almost 60 times earnings. By 2025, SaaS firms were being bought at an average multiple of 18x, down from 24x the prior year. The loans backing the 2021-2022 vintage deals were underwritten at peak valuations. Many of those valuations have been cut in half.
$46.9 Billion in Distressed Software Debt — and Counting
As of early February, more than $17.7 billion in US tech company loans dropped to distressed trading levels in just four weeks — the most since October 2022, according to Bloomberg Intelligence. That brought the total tech distressed debt pile to roughly $46.9 billion, dominated by SaaS companies.
In the leveraged loan market specifically, a record $25 billion of software-sector loans now trade below the distress threshold of 80 cents on the dollar, according to Morningstar LSTA data. Software holds a 13% market share in the leveraged loan index — but 13% of those loans are now marked at distressed levels. That’s a sharp acceleration from late 2025.
The contagion is spreading to the banks. Deutsche Bank got stuck holding $1.2 billion in loans backing a software acquisition (Conga Corp.’s purchase of PROS Holdings’ B2B unit) that it couldn’t sell to investors — a rare “hung deal” that signals how quickly lender appetite has evaporated.
And Bloomberg found that private credit’s software exposure is actually bigger than reported. At least 250 loans to software firms worth more than $9 billion were categorized as other industries by one or more BDCs. A pricing-software company called Pricefx was labeled “business services” by Sixth Street. Restaurant365, which makes software for restaurants, was classified as “food products.” The real exposure is hiding in plain sight.
The Numbers Keep Getting Worse
Software EBITDA multiples have collapsed from 30x at the end of 2022 to roughly 16x today. Revenue multiples went from 10-12x to about 4x. That’s the collateral value of these loans getting cut in half.
Apollo — one of the smartest firms in credit — cut its software exposure nearly in half during 2025, from about 20% to roughly 10%. When Apollo is de-risking from a sector that aggressively, pay attention.
The S&P North American software index fell 15% in January alone — its biggest monthly decline since October 2008. Then February piled on.
Shares of major private credit firms got crushed: Ares Management fell over 12% in a single week, Blue Owl lost 8%, KKR dropped almost 10%, TPG fell 7%. These aren’t software companies — they’re the lenders to software companies. The market is repricing not just the borrowers, but the entire credit infrastructure behind them.
And the BDC sector faces a maturity wall: 23 out of 32 rated BDCs have unsecured debt maturing in 2026, totaling $12.7 billion — a 73% increase over 2025. Golub Capital, with roughly 26% of its portfolio exposed to software, already cut its dividend 15%, with analysts forecasting another 10-20% reduction.
Even Venture-Backed Companies Are Drowning in Debt
This isn’t just a PE/private credit LBO problem. Even venture-backed software companies loaded up on debt during the cheap-money era — and that debt is now an anchor.
Navan IPO’d in October 2025 carrying $657 million in debt against just $223 million in cash. The largest borrowing was a $400 million credit facility led by Goldman Sachs. Much of the debt traces back to the pandemic years, when the company (then TripActions) was forced to make deep cuts as global travel halted.
The result? Despite revenue growing 33% to $537 million and operating losses narrowing, Navan posted a net loss of $100 million in H1 2025 — primarily driven by interest expenses. The stock dropped 20% on its first trading day. As of mid-February, it’s down roughly 60% from IPO to around $10 — with a market cap of just $2.5 billion versus a $9.2 billion peak private valuation. They IPO’d partly to refinance the debt. That plan hasn’t worked. A law firm is already investigating. Q3 showed $195 million revenue with 29% growth and improving non-GAAP margins, but the debt burden dominates the story.
Motive filed its S-1 in December 2025 carrying approximately $300 million in term debt, generating $22 million in interest expense in just nine months. Raised $600 million in equity plus $300 million in debt — versus competitor Samsara, which raised $930 million in equity pre-IPO with no meaningful debt. Some of Motive’s profitability gap versus Samsara is structural, not operational. With secondary market shares trading at roughly $1.6-1.9 billion and the SaaSpocalypse making the IPO window treacherous, the debt burden couldn’t come at a worse time.
The Smart Money Is Worried — and Diverging
Here’s what’s fascinating: the smart money is splitting into two camps.
The bears are getting louder. UBS estimates default rates could hit 13% for US private credit if AI disruption accelerates — more than 3x the projected high-yield default rate. Bloomberg’s Paul Davies wrote on February 18 — yesterday — that “investors in loans and private credit are still playing catch-up” in assessing their AI exposure, and that some software companies are misclassified to hide the true exposure. Private credit default rates are forecast to rise about 2 percentage points this year to around 6%.
But some bulls are buying the dip. Blue Owl, Goldman Sachs, Golub Capital, HPS, and Blackstone just provided a $1.4 billion loan to help Hg finance the acquisition of OneStream at $6.4 billion — right in the teeth of the panic. Carlyle and BlackRock have reportedly begun buying discounted software debt. Wells Fargo analysts argue the selloff may give private credit lenders better deployment opportunities at wider spreads.
Orlando Bravo of Thoma Bravo — arguably the most important software investor on the planet — said at Davos: “AI will disrupt a percentage of software companies — less than half is what we think, but it will be disruptive to many of them, especially if your core competency is technical.”
Less than half. That’s his base case. And he’s the bull.
Why This Matters More Than Falling Stock Prices
Here’s what most B2B founders and operators don’t understand about private credit risk: it’s structural, not just cyclical.
When public software stocks fall, shareholders lose money. That’s painful but it’s transparent, it’s liquid, and price discovery happens in real time.
Private credit is different. These are illiquid loans, often held to maturity, valued by the lenders themselves. The lenders who made the loans are the ones marking them. And they have every incentive to delay recognizing problems.
We saw this with Renovo in November — BlackRock and other private lenders valued its debt at 100 cents on the dollar until shortly before marking it down to zero.
The Fed itself flagged this. A Boston Fed paper found that bank lending to BDCs has been growing as a share of banks’ total loan balances. JPMorgan disclosed that its lending to nonbank financial firms tripled to $160 billion from $50 billion in 2018.
So when Mohamed El-Erian asked whether Blue Owl’s redemption freeze was a “canary in the coalmine” comparable to August 2007, he wasn’t just being provocative. He was pointing at the interconnectedness — the same dynamic that made 2008 systemic.
The Potential Doom Loop Scenario
Here’s the scenario that keeps credit analysts awake:
- AI agents reduce headcount at enterprises. Fewer employees means fewer software seats.
- SaaS companies acquired at 25-30x EBITDA see revenue growth stall or reverse.
- Those companies, loaded with private credit debt from their LBOs, start missing covenants. Except many loans are covenant-lite — so the first sign of trouble is a missed payment, not an early warning.
- Private credit funds mark down the loans. But since they value their own assets, they delay as long as possible.
- When the markdowns come, LPs want their money back.
- Funds face redemption requests they can’t meet because the underlying assets are illiquid.
- To meet redemptions, funds sell performing loans and liquid assets — depressing prices further.
- Banks that lent to these funds face indirect losses. Credit tightens across the board.
We’re at roughly step 2-4 right now. The distressed debt numbers say we’re further along than most people realize.
What’s Different From 2008 (And What’s Not)
This is not 2008. Banks are better capitalized. There’s no CDO-squared leverage.
But some patterns rhyme uncomfortably. An asset class that grew too fast ($2 trillion to $3 trillion in five years), with too little transparency, lent against assumptions that turned out to be cyclical not structural, and is now discovering that “sticky” revenue may not be as sticky as everyone thought.
The key unknown: how many of those 1,900+ PE-owned software companies can adapt to an AI-first world while servicing their debt loads. And with about one-fifth needing to refinance by 2028, according to UBS, the clock is ticking.
Debt Isn’t Free. Even If It Seems “Non-Dilutive”
Venture debt is getting harder. The same lenders that powered the venture debt market are cousins of the private credit funds now under stress.
Acquisitions are stalling. PE was the exit path for hundreds of SaaS companies every year. If sponsors can’t refinance existing portfolio companies, they’re not buying new ones.
Your PE-backed competitors may get weaker. If you’re competing against a company bought at 30x EBITDA and loaded with debt, they’re cutting costs, not investing in product. This is actually an opportunity for well-capitalized, AI-native challengers.
If you’ve taken venture debt, stress-test your balance sheet now. Navan shows that even growth-stage companies can find their debt burden becoming the dominant factor in their financial story. Model what happens if growth decelerates 10-15 points. If that breaks your covenants, have the conversation with your lenders now.
The IPO window matters more than ever. With PE exits constrained and private credit tightening, public markets become the primary path to liquidity. But the Navan experience (60% decline from IPO) and Figma (80% decline from its high despite 40% revenue growth) show that even strong-revenue companies get punished when the macro story overwhelms the micro fundamentals.
Could This Be SVB 2.0?
No, it’s not the same. But the parallels are uncomfortable.
SVB failed because of a concentration problem. One bank, massively overexposed to one sector (tech and venture-backed startups), holding assets that lost value when rates rose (long-duration bonds), facing a depositor base that moved in herds. When confidence cracked, the run happened in hours.
Private credit’s software exposure has a similar structure. One asset class, massively overexposed to one sector (20-25% to software, 25-35% to AI-threatened industries broadly), holding assets that are losing value as AI reprices the entire category, with an investor base — particularly in semi-liquid retail BDC funds — that can and will redeem when sentiment shifts. Blue Owl already showed us what a mini-run looks like.
The differences matter. Private credit is spread across hundreds of funds, not concentrated in one institution. Redemption gates and lock-up periods slow the bleeding. Banks are better capitalized than in 2008 or even 2023. And the loans themselves are senior secured with covenants (even if many are covenant-lite).
But the SVB lesson wasn’t really about one bank. It was about what happens when concentration risk meets a rapid repricing of the underlying asset, and the people holding the bag all realize it at the same time.
That’s exactly what’s happening right now in software-exposed private credit. The repricing is AI. The concentration is 20-25% of a $3 trillion market. The “depositors” are BDC investors and LP capital that expected steady returns and are now watching Golub cut dividends and Blue Owl freeze redemptions.
Will it be as dramatic as SVB? Probably not — the structure is more distributed. But could it produce a sustained credit tightening that starves hundreds of software companies of refinancing options, forces fire sales, and creates a wave of quiet defaults that ripple through the startup and growth-stage ecosystem? Yes. That’s not a tail risk. That’s the base case for 2026-2027.
And unlike SVB, there won’t be a single weekend where the government steps in and guarantees everyone’s money. This will be slow, opaque, and ugly. Company by company, loan by loan, markdown by markdown. The kind of crisis that doesn’t make CNN but reshapes an entire industry.
The Bottom Line
The SaaSpocalypse is dramatic and visible. Stock prices on screens. Headlines everywhere.
But the private credit exposure to software — $600-750 billion in loans underwritten against a thesis that AI is systematically dismantling, with $46.9 billion already trading at distressed levels, billions more hiding behind misclassified labels, and a maturity wall approaching — is the risk that’s harder to see, harder to price, and potentially harder to contain.
As Blackstone’s Jon Gray put it: “Everyone’s focused on these bubble risks. I think the biggest risk is actually the disruption risk. What happens when industries change overnight.”
Private credit’s massive bet on software was built for a world where recurring revenue was forever and switching costs were a moat. In an AI-first world, neither assumption holds the way it used to.
That’s not a canary in the coalmine. That’s the ground shifting under the mine itself.
