Under the impact of AI, "linked chains," U.S. leveraged loans are severely hit, with CLO securities worth up to $150 billion facing disruption.

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The disruptive potential of artificial intelligence technology is rapidly spreading to the credit markets, triggering sharp adjustments in the U.S. leveraged loan market and posing systemic threats to the massive collateralized loan obligation (CLO) market.

Amid growing concerns about damage to traditional business models, the U.S. leveraged loan market has just experienced its worst single-month sell-off in over three years. Borrowers, particularly companies in the software and services sectors, have borne the brunt, with large amounts of debt rapidly falling into distressed territory.

According to a warning from JPMorgan, CLO underlying assets worth up to hundreds of billions of dollars are directly facing disruptive risks brought by the AI boom. This AI-driven market revaluation has not only increased the risk premium of related companies, but has also sounded the alarm for the credit derivatives market highly dependent on such assets.

Currently, this turmoil has led to a sharp contraction in new loan issuance in the U.S. Investors are increasingly worried that, as the maturity peak of debt approaches and with the potential reset expected by the market, the credit market may face further sell-off pressure and liquidity tests.

Sell-off Intensifies, Leveraged Loans Record Largest Drop in Years

The rapid development of artificial intelligence is having a direct impact on traditional credit markets. According to Bloomberg, the Bloomberg U.S. Leveraged Loan Index, which tracks the performance of related assets, fell 1.34% in February, marking the largest single-month decline since September 2022 (when U.S. rate hikes sparked recession concerns).

In this round of sell-offs, loans from the software and services industry led the decline. This market anomaly highlights investors' deep worries that AI technology may disrupt traditional business models. As large amounts of debt enter distressed territory, refinancing risk for borrower companies has risen significantly. As a key financing channel for non-investment grade companies, the U.S. leveraged loan market is under clear pressure, with new loan issuance plunging to its lowest level since May of last year.

Risk Spreads, Hundreds of Billions in CLO Assets Face Revaluation

The turmoil in the leveraged loan market is now spreading to the CLO market through interconnected structured products. JPMorgan strategists estimate that among leveraged loans packaged into U.S. CLOs, about $40 billion to $150 billion in assets could be affected by the disruptive impact of the AI boom.

Previously, Anthropic PBC launched a powerful Claude chatbot, directly prompting sharp sell-offs of software-related loans. Currently, CLO managers are busy reviewing their portfolios to assess which loans are most sensitive to AI's impact.

A team of strategists led by Rishad Ahluwalia at JPMorgan pointed out in a report on Thursday that although fears of an "AI apocalypse" may be exaggerated and focusing on the software sector is reasonable, investors should consider the broader impact of AI disruption on overall CLO credit risk. The strategists conducted an initial screening of AI credit risk in CLOs using market price and rating information but acknowledged that areas with complex regulation and proprietary data issues, like healthcare, require further nuanced evaluation.

Debt Maturity Wave Approaches, Refinancing Pressure Intensifies

At the recent SFVegas 2026 conference, the impact of software on corporate CLOs was a core topic. Participants not only cared about the quality of the underlying assets but also expressed concerns about broader sell-off risks that might be triggered by a weakening labor market or AI-related anxieties.

These concerns are particularly acute as the upcoming wave of debt maturities draws near. JPMorgan strategists stressed the risk of loan refinancing, noting about $51 billion in software debt rated B- or lower will mature by 2028, with another $50 billion due in 2029. Additionally, since the private credit market has similarly large exposure in the software sector, its ability to provide refinancing for syndicated assets is limited, and the previously common "public-to-private" takeover model may no longer be sustainable.

Although JPMorgan economists expect the penetration of artificial intelligence into the real economy to be relatively gradual, strategists warn that financial markets' leveraged speculation on AI may face the risk of an "unpleasant reset," consistent with their cautious outlook for the 2026 CLO market.

Risk Warning and DisclaimerThe market is risky, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account individual users' specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Investing based on this is at your own risk. ```