SaaS-pocalypse stresses $3 trillion private credit market

The $3 trillion private credit market has been considered the darling of Wall Street, taking risks that traditional banks could not. 

It seemed successful: mid-sized companies were able to acquire capital to grow, and investors who were willing to take risks and craved high yields, including those with retirement accounts, enjoyed consistent, large returns.

Then AI came to shut it all down.​

Analysts have warned that the software-as-a-service (SaaS) side, a sector dotted by many private lenders, would be crushed by generative AI.

AI disrupts business development company (BDCs) software lending

SaaS companies account for 20% to 25% of private credit deals, according to 9fin. Software companies were considered safe due to sticky, recurring revenue.

As you’ve seen in the headlines in recent days, Anthropic and OpenAI launched AI models that replicate complex SaaS functions at a fraction of what it takes to pay an engineer, essentially taking down mid-tier software business models.

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Not only did your tech portfolio take a hit, but the industry giants did as well.

• Ares Management (ARES): dropped 12%.
• Blue Owl Capital (OWL): plunged 8%.
• KKR (KKR) and TPG (TPG): decreased 10% and 7%, respectively.

UBS Group came out with an “aggressive disruption” scenario in which default rates for private credit could increase to 13% in 2026 if AI adoption outpaces borrowers' ability to adjust.

To put 13% in perspective, it is more than triple the stress projections for high-yield bonds (4%).

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$7 Billion redemptions, retirement ripple effects

The democratization of private credit, as mentioned in my previous article, moved from Wall Street investors to actual mom-and-pop individual retirement accounts.

BDCs and popular “yield-plus” funds were the backbone of personal wealth growth. But if these funds struggle, the net asset value (NAV) of personal accounts can drop overnight.

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Private credit has historically been secretive, hence the name ‘private.’

Private lenders do not need to disclose their daily losses, but this opacity is making many people unhappy and suspicious as SaaS stressors ripple through.

The current pressure can be attributed to a few things:

• Payment-in-Kind (PIK) Loans: SaaS firms often use PIK structures, which let them delay paying cash interest and instead pay with debt. It obscures financial weakness until the last moment.
• Redemption Waves: In late 2025 & early 2026, there were over $7 billion in redemption requests.
• The “Lending Standard”: Private Credit has lower lending standards than traditional banks. As AI seeps into the SaaS market, these “easy” loans may be the first to break.

The market is in a “wait” mode, but the stark drops seen in February 2026 show that patience is wearing thin. 

Michael Arougheti, CEO of Ares, signaled that software exposure is manageable, accounting for only 6% of assets and 9% of their private credit portfolio. But for the rest of the market, unease about the “SaaS- pocalypse" may be a looming headache for some time.

Related: Goldman Sachs sends software stock warning amid bounce