Private software debt showed signs of stress well before AI-driven concerns sparked a broader SaaS market downturn. The share of private software debt worth less than 80% of its original value reached a five-year high of 6.1% by September 2025, according to MSCI's analysis of institutional holdings. This marked a significant jump from 4.8% during the first nine months of the year, signaling mounting challenges in repaying loans issued during the pandemic's remote-work surge.

Many of these loans originated post-Covid when employers aggressively invested in digital tools, boosting software sales. Gil Luria of D.A. Davidson noted that private-equity owners encouraged borrowing against assumed perpetual revenue streams, even as they simultaneously cut costs. When employers trimmed spending, the debt burden remained, creating a mismatch between shrinking cash flows and fixed obligations that private credit investors now face.

MSCI's examination of $73 billion in institutional holdings provides rare transparency into the $2 trillion private credit market, where pensions and endowments seek higher yields. The data reveals that markdowns exceeded 20% at a faster rate than in previous years, highlighting risks in IT lending even before AI disrupted traditional software valuations. This suggests broader vulnerabilities in private credit markets extending beyond tech.