Private credit markets are experiencing heightened uncertainty due to the impact of AI on the software industry, a key borrower group for private lenders. Recent AI advancements from Anthropic have intensified concerns over traditional software business models, leading to significant stock declines for major asset managers like Ares Management and KKR. As private credit funds often invest heavily in software companies, this disruption poses risks to cash flows and could increase default rates, with UBS projecting scenarios where defaults rise to 13%. As software companies account for about 17% of U.S. business development company loans, the adoption of AI may exacerbate existing liquidity strains and portfolio issues. Analysts highlight that while current credit environments may absorb losses, ongoing AI disruption, rising leverage, and opaque valuations could signal systemic risks. The private credit landscape must adapt swiftly to avoid significant challenges in a rapidly evolving market.
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