Octus Private Credit Software Analysis Reveals Almost 30% Exposure to BDCs; 13% of Loans Have PIK Component; Fewer Than 10% Loans Mature Before 2028

The percentage of business development company, or BDC, investments in software companies was approximately 29% as of Sept. 30, 2025, according to an analysis of 155 public and private BDC portfolios, representing $152.6 billion of debt principal and $152.9 billion of investment cost. Prices, as measured by fair value divided by principal, averaged 97% of par, with approximately 6% of loans marked below 90% of par.
 

Octus’ results are higher than the 20% exposure estimated by other institutions because our analysis includes any company in which the primary service provided is via software and pulls from companies also marked by BDCs as information technology, business services and healthcare technology. In addition to manually searching business models and BDC descriptions, our model relies on AI to search through business models and eliminate companies whose primary function is not software.

Aggregate results are provided in this report. As shown in the table below, Octus has estimated exposure by BDC, in addition to percentage of companies with PIK interest, maturity schedules and average pricing. A download providing details for each BDC is HERE.
 

The sharp selloff in software companies, driven by fears of AI displacing a number of business models, has resulted in sharply reduced valuations and questions about private equity exits and refinancing risks, as discussed previously by Octus. Year to date, the S&P North American Technology Software Index is down more than 20%. Similarly, public loans and bonds have sold off sharply.
 

However, in the near term, private credit restructurings for software companies is likely to be minimal given the relatively low number of loans set to mature over the next few years. According to our analysis, just 9.7% of software loans mature prior to 2028. Maturities, absent extensions or refinancings, pick up in 2028, as shown below. Octus calculates average maturities for software loans across BDC portfolios of 4.9 years as of Sept. 30, 2025.
 

Despite the selloff in public debt and equity, as shown above, pricing remains near par across average software portfolios. Average prices across all software held by BDCs was 97.8% of par as of Sept. 30, 2025.

The data used for this analysis is from Sept. 30, 2025, reports. However, quarter to date for BDCs that reported results for quarters ended Dec. 31, 2025, fair values for software loans have experienced little movement, at least based on publicly reported filers analyzed by Octus. This makes sense given fair value marks for those reports would have been as of Dec. 31, prior to the recent selloff.

Oaktree Specialty Lending Corp. highlighted that the primary risk related to AI disruption is not immediate credit deterioration but rather “calls into question the refinanceability of these loans when they mature,” particularly for software companies whose business models may become less competitive over time. Oaktree emphasized that even before operational performance weakens, private equity sponsors may be less willing to support companies facing structural disruption, increasing refinancing risk.

Public evidence to date suggests little widespread fundamental pressure, except for certain subsectors.

For instance, in the education space, lenders to career education company Pluralsight placed the loans back on nonaccrual status. This follows the loans restructuring in 2024. Oaktree Specialty Lending characterized the current situation, stating, “We placed a second-out term loan of Pluralsight on nonaccrual … due to the ongoing challenging industry dynamics and the company’s softer-than-expected outlook.”

Legal technology management company Dye & Durham reported an 8% year-over-year drop in its revenue in its fiscal 2026 second quarter ended Dec. 31. The company’s revenue has been under pressure for a few quarters, as the company has had to give price concessions to customers and because of volume declines from its noncontracted revenue.

We break out different loan metrics across BDCs, based on the level of stress in software portfolios, as measured by the percentage of software loans marked below 90% of par, below:
 

As shown above, BDCs with the highest exposure to loans marked below 90 tend to have lower overall software exposure as a percentage of their portfolios. However, exceptions to that, according to our analysis, include Oxford Square Capital Corp., Palmer Square Capital BDC, Whitehorse Finance, BC Partners Lending Corp., Rand Capital Corp., Triplepoint Private Venture Credit and Trinity Capital Inc.

Unsurprisingly, BDCs that have a greater number of loans priced below 90% of par also have lower overall average pricing across their entire software portfolio. However, as noted above, average pricing remains near par across most software loans, with many loans exceeding par and, therefore, even in the bucket of BDCs with 10% to 20% of loans priced below 90, the overall average pricing across all software loans still exceeds 95% of par.

On the basis of the analysis, there does appear to be some correlation between time to maturity and the number of loans with a fair value price below par.
 

The connection between maturities and stress may exist if other loans had already been refinanced or given perceived equity cushions. Management teams say they remain confident that loans with longer runway can be refinanced. Either way, if this pattern holds, the fact that maturities through 2027 are relatively low would imply significant write-downs of software companies might not occur until late 2026 or early 2027.

There appears to be very little correlation between loans priced below 90% of par and BDCs’ exposure to loans with PIK interest. This seems counterintuitive, since elevated stress should lead to loans converting to instruments with PIK interest. However, this outcome of little correlation supports management teams’ commentary from a number of BDCs that have reported suggesting the vast majority of PIK exposed loans featured PIK interest at origination and very little PIK exposure is a result of negotiations with lenders or loans converting to new instruments featuring a PIK component.

Amended PIK refers to interest that is converted from cash pay to PIK after origination, typically as part of a loan modification to provide liquidity relief to a borrower. It is often viewed by lenders as a potential indicator of credit deterioration.

Ares Capital Corp. noted that loans that contain PIK interest or attached dividends typically are structured this way at the outset of the investment. It estimates that only 10% of its current loans with PIK interest were due to amendments. Ares Capital Corp. did say that its software book has a slightly higher percentage of PIK in it.

Alternatively, Blue Owl Capital Corp. said that levels of PIK interest in its software loans were consistent with the rest of its book. PIK interest is common for companies with high recurring revenue and strong growth but lower EBITDA conversion. In these cases, PIK is often structured at origination, allowing companies to prioritize company growth.

Octus estimates Ares Capital Corp. PIK exposure in its software loans was 12.2% as of Sept. 30, 2025. Blue Owl Capital Corp.’s PIK exposure across its software book was 8.7%. As discussed in our BDC quarterly analysis, Octus calculates that PIK income as a percentage of total income was 6.7% in the LTM period ended Sept. 30, 2025.

A list of BDCs with a combination of the largest exposure to software as a percentage of fair value, elevated number of loans with a fair value price below 90 and substantial amount of software debt that matures prior to 2028, is below:
 

Many of the funds listed are venture-focused BDCs that have significant equity or warrant exposure. Venture Lending & Leasing is an early and expansion-stage lender that is set to be dissolved on Dec. 31, 2028, according to the company’s most recent financial results.

Limiting the results to only funds that have more than $1 billion in assets yields a different list of BDCs, shown below:
 

Of those BDCs, Golub Capital BDC, Trinity Capital and BlackRock TCP Capital Corp. each report slightly elevated near-term maturities for their overall software book. We have not compared loans priced under 90 to maturities, so it is possible that loans maturing in 2026 and 2027 are of higher quality.

For instance, Golub Capital BDC’s incidence of loans marked below 90 is high because it reports multiple loan tranches in a number of stressed loans, including TI Intermediate Holdings and Revalize Inc. Across all of Golub Capital BDC’s software portfolio, average prices were 98.2% of par as of Sept. 30, 2025.
 

Proprietary Data Viewed as AI-Resistant Moats

Leading BDC lenders emphasized proprietary data ownership and deep workflow integration as the primary factors protecting software credits from AI-driven disruption. Rather than viewing AI as a direct threat to established platforms, lenders broadly argue that although AI can lower development costs, it cannot replicate the proprietary data, customer relationships and system embedment.

Ares Capital Corp. highlighted its focus on software providers that “collect and own proprietary data,” describing this accumulated data as a “data moat.” The firm stressed that “AI is not a database. AI doesn’t house data, it can’t replicate proprietary data,” reinforcing its view that companies that control unique datasets and serve as systems of record are structurally more resilient.

Golub Capital BDC Inc. similarly noted that “AI competitors can’t easily replicate proprietary data sets,” emphasizing that its portfolio is concentrated in enterprise platforms with embedded workflows and sticky customer relationships.

Sixth Street Specialty Lending Inc. underscored that its portfolio companies benefit from “massive incumbency advantage,” driven by “distribution, customer relationship, and deep domain expertise.” The firm noted that these structural moats, including “data integration, network effects and regulatory complexity,” remain “incredibly difficult for a new entrant to displace even in a world where it is faster and cheaper to write code.”

Blackstone Secured Lending Fund stated that subverticals with “proprietary systems, huge data lakes and incumbent long term customer relationships” are more likely to be protected or benefit from AI adoption, while less differentiated business models face greater displacement risk. The firm added that “vertical software ERP, data infrastructure, data management, and security” are key areas to focus, noting these segments have delivered “40% EBITDA growth” since underwriting and continue to trade “in the 15 to 20 times EBITDA range.”

Exposure to Regulated End Markets a Positive

BDCs highlighted software companies serving regulated industries such as healthcare, financial services and defense as among the most resilient credits, given the high switching costs and regulatory barriers associated with replacing core systems. Lenders emphasize that customers in these sectors are significantly less likely to adopt unproven alternatives, particularly where accuracy, auditability and compliance are critical to ongoing operations.

Ares Capital Corp. underscored its focus on software providers operating in regulated end markets. The firm stated that in sectors such as healthcare and financial services, “the need for accuracy and auditing of information is really high and the penalties for lack of compliance can be severe,” adding that it is going to take “a really long time for companies that are in these types of industries to gain enough trust in any kind of new product, if ever.”

Similarly, Hercules Capital Inc. highlighted its increased focus on software companies with customer bases in highly regulated industries, noting that many of these platforms “serve as the gatekeepers to their customers’ structured data ” and provide tools supporting mission-critical functions.

Need for Content, Analytics and Tool-Based Software

BDCs broadly pointed to content-focused platforms, analytical tools and single-function applications as the most exposed segments of the software landscape, reflecting their position at the edge of the technology stack.

Ares Capital Corp. noted that it remains very disciplined around software categories more susceptible to disruption, specifically highlighting “single-function software apps that sit on the edge of the tech stack.” The firm pointed to content creation and data analysis platforms as areas of concern, stating that “AI is fantastic at creating content” and “exceptional at summarizing data and spitting out all different types of reports and synthesizing those.”

Golub Capital BDC Inc. echoed this view, noting that it has “very little exposure to software that’s focused on content creation, software that’s focused on analytical overlays, software that’s tool-based.”

ARR-Based Loans Face Greater Scrutiny

BDC lenders are increasingly monitoring ARR-based loans more closely. Recurring revenue-based loans, or ARR-based loans, are structured around a borrowers’ contracted recurring revenue rather than traditional EBITDA or cash flow metrics. These loans are commonly used to finance high-growth software companies that have predictable subscription revenue but may not yet generate sufficient EBITDA. ARR-based loans are more exposed to AI disruption because their credit quality depends heavily on future growth and retention. AI directly weakens those assumptions in certain types of software.

Ares Capital Corp. noted that ARR loans represent a relatively small portion of the high-risk portfolio, emphasizing that “very, very, very small, almost de minimis” exposure is tied to companies with negative EBITDA. The firm added that many ARR borrowers already generate positive EBITDA or have achieved profitability over time, as recurring revenue growth translates into stronger cash flow.

Barings BDC Inc. identified ARR-based software companies as an area of increased attention across the market, particularly those expected to transition to EBITDA-based covenants but that have not yet done so. The firm said it anticipates “headwinds will be over-indexed in this segment of the software ecosystem in the quarters to come.”

Golub Capital BDC Inc. indicated it has reduced exposure to ARR loans in recent years, citing tiger pricing and weaker booking trends, and it described the segment as a “more challenging space.”

Other lenders have focused on conservative structuring to mitigate risk. Hercules Capital Inc. noted that it maintains “ARR attachment points less than 1x on average, and historical duration of our software loans less than 24 months.”

Octus’ proprietary private credit database allows users to filter for ARR-based loans. A link to the database can be found HERE.

Market Volatility Creates Deployment Opportunities for Private Credit

To end on a positive note, BDC lenders broadly view the market volatility in software valuations as an opportunity for private credit, saying price and spread movement create more favorable entry points, particularly as traditional financing sources become more selective.

Ares Capital Corp. indicated that widening bid-ask spreads and lower valuation expectations in software buyouts could create “really attractive add-on opportunities for existing portfolio companies”. The firm stated that lower valuations are likely to drive increased deployment opportunities, particularly through add-on financings and private transactions.

Golub Capital BDC Inc. similarly noted that tiger conditions in broadly syndicated loan and high-yield markets could benefit private credit lenders, adding that reduced access to traditional capital “mean more opportunities, better pricing, [and] better capital structures.”

Hercules Capital Inc. also emphasized that it intends to deploy capital opportunistically, saying it views the current environment as an opportunity to “play offense.”