Private credit lenders bet big on software companies. Now they're worried AI might make those companies obsolete. They've ruled out a "SaaSpocalypse" though, which is generous considering they just admitted their portfolio is facing an existential reckoning.
The distinction matters to exactly nobody. Either your borrowers can pay you back or they can't. Slapping a cute portmanteau on the collapse doesn't change the math. These lenders loaned billions to subscription software businesses under the assumption that recurring revenue was permanent revenue. Turns out recurring just means "until something better shows up."
AI showed up.
The lenders now claim they can separate winners from losers, which is what they said they were doing before the reckoning. Back then the winners were "all software companies with positive unit economics." Now the winners are "whichever ones survive AI eating their margins." This is called due diligence evolution. Darwin would be proud if he understood IRR calculations.
Private credit exists because banks got regulated and someone needed to loan money to companies at 14% interest. Software was perfect for this. High margins. Low capital requirements. Predictable cash flows. Then OpenAI released a chatbot that can write code faster than the junior developers these companies were charging $200,000 per year to maintain.
The lenders insist this isn't a crisis. They're monitoring the situation. They're stress-testing portfolios. They're having difficult conversations with management teams about AI integration strategies. What they're not doing is getting their money back at par.
SaaSpocalypse would imply drama. This is just private credit lenders realizing they underwrote covenant-lite loans to companies whose moats were "we hired developers in 2019." The reckoning isn't coming from AI. It's coming from the same place it always comes from: the part of the credit agreement where it says the borrower has to pay.
Photo by Markus Winkler on Unsplash
Leave a Comment