Private credit managers are pushing back against investor panic over their sector’s exposure to software firms, arguing that the largest financial risks lie with private equity owners, not lenders. The core argument centers on leveraged buyouts (LBOs) financed by private credit: if AI-driven competition tanks these firms’ valuations, equity holders—not debt holders—would absorb losses. This framing aims to stabilize investor confidence amid fears of a broader market correction.

The source clarifies that software companies receiving private credit infusions at the decade’s start now face existential threats from AI automation. However, the private credit structure separates risk: lenders provide capital for acquisitions, while equity investors shoulder operational losses. This distinction, the article implies, could shield debt markets from contagion if specific industries collapse.

Market implications extend beyond individual deals. If private equity firms face widespread write-downs, it could ripple into broader asset devaluation, affecting collateral values for other lenders. Yet the immediate defense from private credit players suggests they’re prioritizing sector stability over acknowledging systemic risks. Investors remain split on whether this risk transfer is sustainable.

The critical takeaway: LBO-driven private credit exposure remains the sector’s Achilles’ heel. While managers downplay lender vulnerability, the underlying dependency on software firms’ survival—and their susceptibility to AI disruption—creates a ticking time bomb. The article leaves unresolved whether this risk distribution will hold as AI adoption accelerates across industries.