CoreWeave’s recent struggle to secure favorable loan terms highlights a shift in the leveraged loan market. Once flush with easy credit, borrowers now face tougher conditions as investors grow wary, particularly toward software and AI companies.
Loan investors are no longer willing to accept borrower-friendly deals without a fight. Credit spreads are widening, and new debt issuance is slowing as lenders push back hard. This trend is especially evident among private equity firms and AI-focused businesses, which have seen borrowing costs climb noticeably.
Under the microscope, software companies are feeling the pain first. Many have postponed raising debt, signaling discomfort with the higher costs and stricter terms lenders demand. UBS’s modeling adds to concerns: while default rates hover between 1-2% normally, moderate disruption could push that up to 3-5%, and AI-related shocks might spike defaults to 13%.
US banks have responded by hiking rates for loans to private credit funds, who then pass on those higher expenses to the companies they lend to. This ripple effect means every refinancing or new debt round is becoming pricier.
Private credit firms have taken a hit on the public markets. Blue Owl Capital’s shares dropped around 10% early this year amid fears tied to AI’s impact on borrower valuations. Big players like Ares Management and Blackstone also faced significant share price declines. Private credit, now a $2 trillion market, heavily backed software companies due to their steady cash flows, but rising uncertainties are rattling that confidence.
