Private Credit: The Software Space Is Becoming a Tougher Sell for Lenders

For years, private credit lenders feasted on software loans. Now, that feast has turned to finger food. Market sources say private credit software deals done this year have typically been refinancings and extensions completed by incumbent lenders. They say it’s tough to attract new lenders to legacy software credits.

There are exceptions. Financing is still available for businesses providing lower leverage, higher pricing, or compelling narratives about how a business is positioned to benefit from AI. Software companies have accounted for 12% of all PE-backed direct lending deals by count tracked by LCD so far in 2026, down from 16% last year.

The decline in PE-backed software direct lending deals by volume is much steeper, as investment bankers have had to tap dozens of lenders to secure financing for software borrowers that once had access to abundant capital. Based on LCD’s estimates, software deals accounted for 15% of PE-backed direct lending volume so far this year, down from 22% last year and the recent peak of 27% in 2020 and 2022.

Once the private credit industry’s darling, software has become a harder sell. In peak credit market conditions, private lenders loved the reliable recurring revenue streams and high switching costs of enterprise software models. Direct lenders have deployed heavily in the software and tech sector—especially since 2021, when ultra-low borrowing costs fueled a boom in software buyouts that coincided with heavy private credit fundraising.

But private credit lenders, their loan portfolios stuffed with software loans (some of which are stressed), have grown pickier. AI-induced worries about software drove a profound change for private credit in the first quarter, when the launch of Anthropic’s Claude Cowork ignited investor fears that new AI tools would spur the creation of bespoke software solutions and end the costly subscriptions that had driven revenue for software-as-a-service companies.

A recent example of a software financing success is the potential $800 million private credit financing lined up to support Brookfield’s proposed carveout acquisition of compliance software company Actimize from NICE. While terms have not been finalized, sources indicated that many lenders are evaluating the business in the context of its niche specialty, financial compliance, seeing it as a subsector more resilient to AI disruption.

Elsewhere, Comvest stepped in with a $350 million loan to Calero to refinance its existing debt, taking out incumbent lenders MidCap and Golub in the process. While the software company’s expense management software is not considered bulletproof against AI disruption, pricing of S+650 was compelling enough to make some lenders comfortable with the risk.

One software deal that bucked the trend was the more than $600 million in financing to support Permira’s merger of software companies Highspot and Seismic. The loan was priced at S+475, and it includes initial annual recurring revenue covenants that will convert to cash flow covenants. This deal stands out for both its tight pricing and its ARR structure—a feature that is more of a hallmark of the days of easy credit for software borrowers. Nevertheless, the sales enablement software platform merger was attractive enough to bring a club of banks and direct lenders on board to finance the Permira deal, led by PNC.

ARR loans—a borrower-friendly feature—are underwritten on revenue streams rather than EBITDA. The loans are typically structured to eventually switch to EBITDA-based covenants. Most recurring revenue loans have been given to software companies considered to have high growth potential, even if they generated low or no operating profits or losses.

Many private credit providers are focusing on existing portfolio companies, rather than new investments. There have been several high-profile examples of software borrowers obtaining new terms in the syndicated loan market.

Three prominent PE-backed companies have completed amend-and-extends in recent months, rather than pursuing more traditional refinancings with existing lender groups. The most recent was Thoma-Bravo-backed Sophos, which last week completed a cross-border A&E, pushing out the maturities on first-lien loans totaling $1.66 billion and €450 million. This came after the company held talks earlier this year for a potential private credit refinancing of its debt that fell through.

There was also Proofpoint’s A&E from July, which extended the maturity on $4.3 billion of the company’s first-lien term loan. Earlier in the summer, Imprivata completed an A&E to push out maturities on about $1.2 billion of the company’s first-lien debt.

Private credit has its own slate of software maturities to worry about, as billions in software loans held in BDCs are set to mature in 2027 and 2028, the largest of which are highlighted below. Potential refinancing and exit opportunities for these borrowers are likely to vary based on subsector and leverage. Some software borrowers have already restructured their private credit loans, and more are possible.