Wall Street's private credit panic may be obscuring a deeper problem: private equity firms could face losses before lenders do. As private credit concerns mount, investors are increasingly focused on firms like Vista Equity Partners and Thoma Bravo that loaded up enterprise software companies with debt during the last decade's deal boom.

In 2024, Vista essentially wrote off its $4 billion investment in education software company Pluralsight when it handed the company to private credit lenders. This capital stack dynamic means equity holders absorb losses first, raising questions about which firms should be watched most closely as economic conditions worsen and AI tools threaten traditional software business models.

Higher interest rates, falling software valuations, and a frozen exit market have created perfect conditions for stress in the sector. While private credit lenders have protections like seniority and loan covenants, debt investors may have less tolerance for losses than equity holders. JPMorgan Chase has already marked down loan values in private credit portfolios, and industry insiders privately worry that firms have incentives to downplay problems until conditions improve or exits reopen.