Bain Sees Software Debt Defaults Spiking

Welcome to The Credit Edge. With Blue Owl in the headlines and Jamie Dimon warning about excesses, how worried should we be about credit right now, and is software the soft spot?

The macro backdrop looks solid, but credit feels priced for perfection with tight spreads and a lot of insurance-linked money behind it. The real risk sits in certain sectors, especially where AI may reset business models and valuations.

Retail money, gates, and withdrawal limits are spooking people. How do you see the retail versus institutional split in private credit?

Retail has not lived through being gated in private assets, so it will feel jarring even if it protects the system. As flows grow, liquidity and marks will be tested, which could force sales and pressure valuations.

On software, many lenders leaned in hard when rates were near zero. Is a reckoning here?

SaaS remains useful and sticky, but growth and pricing power are coming down, which hits multiples and enterprise values. Heavily levered vintages are heading into tough refinancings, so expect a real but contained sector cycle.

Where might defaults land for software?

Higher than the broader loan market; a peak in high single digits to low double digits would not surprise me, though sizing it precisely is hard.

Software has contracts, high margins, and is embedded in workflows. Do those defenses still hold?

Recurring revenue, high gross margins, and strong cash conversion are still there, but AI can compress pricing and shorten or soften renewals, which has already pulled multiples down and will strain refis.

Is this worse in private credit than in broadly syndicated loans?

No. The issue spans both markets; leverage worked on the way up and will bite on the way down. This is a classic sector-led credit cycle.

Could software stress spread to the wider market?

I see concentrated pain in a few areas like software, while other sectors are getting unfairly lumped in. We are focused on the opportunities panic creates, but with spreads this tight the broad credit risk-reward is not compelling.

Big picture, is the main threat still a deep, extended recession?

Yes, a macro shock drives full credit cycles, but current data do not point to a deep recession in the next year. Hedging the tails is sensible, yet a base-case downturn is hard to justify today.

CLOs have been a favorite trade, but some worry about loans moving from BDCs into CLOs. Is there real risk here?

CLOs have held up well historically; the thin, levered equity tranches are where software concentration could sting. Senior tranches should be fine.

You also run asset-based finance and private IG strategies. What does that include, and how big is it?

We finance cash-generating, tangible assets and build structured deals that place senior risk while we often keep the first-loss slice, targeting equity-like returns on credit-like risk. It is a huge, bank-to-private migration spanning aviation leasing, royalties, data infrastructure, and more.

So it is like ABS, just private?

There is overlap, but private IG goes further by tailoring structures to ratings and balance-sheet goals; we can place large seniors with insurers and keep the residual. Expect rapid growth and spread compression as boards get comfortable.

Who takes the yield, and why would a CFO choose this over cheap public bonds?

Total-return investors take the junior piece, while insurers and others buy the seniors; the company cares about unlevered cost and ratings treatment, not the investor’s tranche returns.

Beyond aviation, where do you see the best opportunities now?

Music and healthcare royalties, select digital infrastructure outside the United States, receivables, and fleet. We often find better value here than in plain vanilla performing credit.

Bowie bonds left scars. Why do music royalties work today?

Streaming restored paid consumption and built liquidity, turning catalogs into long-duration, scarce, and predictable cash flows; steady price hikes and deeper securitization have improved leverage and returns for rights owners.

What about data centers?

We invested early in Asia and Europe and took a picks-and-shovels approach in the United States; we held back on direct United States builds amid crowded capital and supply-demand questions.

Will retail frustration slow the democratization of alternatives?

Growth may cool, but access will keep expanding because returns are compelling; communication and brand trust matter now that these are consumer products.

Are investors widening the geographic lens beyond the United States?

Yes. We see strong demand for hybrid and structured solutions across Asia and Europe, with Europe catching up quickly on product innovation, and we have deep local teams to execute.

Where is the best relative value in the next year?

Structured corporate solutions in the United States are the richest seam, with equally attractive mid-size opportunities in Asia and sponsor deals in Europe, so we are deploying evenly across regions.

That’s The Credit Edge. Thanks to Angelo Rufino for joining us, and thanks to you for listening—follow and review the show wherever you get your podcasts.