Software Selloff Spreads Across the Fixed-Income Markets

The fixed-income market experienced significant upheaval this week as AI disruption fears triggered widespread selling across software company debt, with ramifications spreading from secondary trading to primary issuance in both large-cap and middle-market spaces. Average U.S. high-yield bond spreads widened to 297 bps, and the LSTA Leveraged Loan Index declined to 97.72 this week. Nevertheless, loan inflows improved to $1.13 billion from $520 million, and high-yield inflows moderated to $720 million from $1.23 billion. Software companies comprising up to 20% of business development company portfolios. BDCs with significant exposure to software suffered forced selling after Anthropic released 11 plug-ins that could disrupt their businesses. The U.S. leveraged finance market saw muted activity with just 14 loans and five high-yield bonds announced or priced this week, totaling $13.6 billion and $4.4 billion respectively, as investors re-evaluated their exposure to software credits that were once considered safe havens among dealmakers. Electronic Arts’ $20 billion JPMorgan-led debt package backing its $55 billion buyout faces scrutiny amid AI-related headwinds, while Thoma Bravo-owned Conga’s $1.2 billion leveraged loan financing received lackluster demand, forcing Deutsche Bank to fund it as buy-siders waited to see where software valuations settle. In contrast, non-software deals such as Sealed Air’s[...]