AI shock shows no signs of easing, traders rush to dump software industry debt exposures

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Leveraged loan traders are significantly cutting their exposure to software industry debt, with many loans pricing near or at face value for early 2026. This shows that concerns about artificial intelligence are spreading throughout the credit market.

Media, citing people familiar with the matter who participated in the trading but requested anonymity due to prices not being public, reported that syndicated loans of software companies including Avalara Inc., Citrix, Dayforce, and Proofpoint fell 1 to 3 points in the secondary market from last Friday to this Tuesday. These loans were quoted near face value (around $1 per $1 face value, or nearly 100 cents) as of December 31 last year.

The latest catalyst for the “AI panic” trade sweeping global markets this year is Anthropic expanding the scope of its Claude chatbot application, enabling automation of tasks in human resources, investment banking, and design.

The $5.5 billion loan for HR software platform Dayforce fell 1 point to 92.75 cents on Tuesday. The $2.5 billion loan for tax software provider Avalara dropped 2 points, with the bid price falling to 94.75 cents.

Previously, software companies borrowed billions for private equity-driven acquisitions, but these debts are now becoming a focus of sell-offs. Many of the worst performers in the Bloomberg US Leveraged Loan Index are tech companies, some of which have already dropped to “distressed debt” levels.

Kevin Foley, Global Head of Capital Markets at JPMorgan, stated:

What was previously regarded as a pure tailwind for growth is now becoming a potential disruptive force, and the market is becoming much more selective. AI will be around for the long term, and we are still learning how it will change our lives—personally and professionally—but it will create new opportunities. This doesn’t mean new software products won’t be created, but it does alter the logic of how the industry operates.

At an online launch event Tuesday, Anthropic announced its latest progress with partner companies. Anthropic stated it will also let enterprise clients customize plugins to meet their own organizational standards. A large part of Anthropic’s new products target the financial industry, including plugins specifically designed for financial analysis, equity research, private equity, and wealth management.

The sell-off in software loans has spread to broader US credit risk indicators. On Tuesday, these indicators reached their worst levels since November last year. The Markit CDX North America Investment Grade Index, which rises when credit risk increases, expanded by 1.38 basis points to 53.82 basis points. The similar index measuring high-yield market risk fell to 107.21.

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