Leveraged loans sold by software companies are climbing as investor fears about the industry ease and lenders that missed the original deals buy the debt in the secondary market. Loans for Proofpoint Inc. and Gainwell Technologies were quoted close to 101 cents on the dollar on Thursday, according to people holding the debt. That is a quick leap above par for loans totaling more than $7 billion that were originally sold at 98 cents on the dollar. A roughly $2 billion slug of loans for cybersecurity firm Sophos Holdings LLC was also quoted above par, after the company offered that debt at 97 cents last month.
As skepticism over AI disrupting software businesses mounted earlier this year, companies had to offer sweeter terms to lure investors. Advancements in AI tools hit particularly hard companies built around the software as a service, or SaaS, model, in what became known as the "SaaSpocalypse." Portfolio managers dumped their software holdings, cratering the value of these companies' loans and leaving some in distressed territory. Those concerns are now easing. "The SaaSpocalypse has essentially blown over for now," said Grant Nachman, founder and chief investment officer at Shorecliff Asset Management.
The Federal Reserve's decision to lift interest rates is another tailwind for leveraged loans, whose floating-rate structure becomes lucrative when rates rise. US leveraged loan funds attracted $1.93 billion in inflows on Thursday, the largest since Feb. 5 last year, according to LSEG Lipper data. Software and technology loans have rebounded from their February low but still lag the broader US leveraged loan index. The iShares Expanded Tech-Software Sector ETF, ticker IGV, is up more than 45% since its April low for the year.
Credit investors remain cautious. Healthcare software business Symplr Software agreed to an approximate $175 million equity injection from its owners last month to revamp its debt, while Syniverse Technologies is overhauling its loans through a liability management exercise. Beach Point's Sinjin Bowron said he does not think the SaaSpocalypse is gone, only on pause, and that it may have been overdone at the beginning.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing