The Basis Point

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‍Takeaway: Software loan pricing decoupled sharply from the broader market over the first half of 2026. This looks like indiscriminate, sector-wide de-risking rather than company-by-company analysis.

Some borrowers certainly deserve to trade at stressed levels, but healthy credits were caught in the crossfire, giving bottom-up credit investors room to separate real balance sheet risk from simple collateral damage.

Takeaway: New money accounted for only ~27% of the $221B in Q2 loan activity, and of the $53.8B of issuance, a five-year high, $13B came from a single transaction. Borrowers are pushing out maturities rather than putting money to work.

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The average spread looks steady, but B- paper has widened 57bps since Q4 2025 and now trades at its widest gap to single B since Covid. The average is holding because the dispersion is sitting inside it.

‍Takeaway: Software's share of new-issue BSL has fallen to 8.6% YTD, the lowest reading since 2013, and PE-backed software issuance has more than halved in a year. ‍

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Only 5% of software's $408B 2028 maturity wall has cleared to date, versus 42% for the rest of the market. Lenders aren't repricing software risk. They've stopped underwriting it.

‍Takeaway: At an 8% default rate, the direct lending market will have ~3,800 individual loans requiring restructuring. To put this operational burden into perspective, the entire institutional BSL market consists of only ~1,300 issuers. Direct lending is structurally unequipped to handle this volume.

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There is no liquid secondary market to bring in distressed buyers or allow original lenders to exit, and no standardized documentation to accelerate negotiations.

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The market faces a severe capacity crisis, a wave of ~3,800 highly bespoke, labor-intensive restructurings will utterly overwhelm fund managers, leading to prolonged asset paralysis and severely degraded recoveries.

Takeaway: BDC PIK income reached nearly 10% in Q4 2025, exceeding its COVID-era peak, highlighting increased reliance on non-cash interest, often consistent with rising borrower liquidity pressure.

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Lenders and borrowers are increasingly relying on PIK interest to preserve the optics of performing loans while quietly compounding risk.

Takeaway: When defaults do happen, lenders are recovering far less than historical norms.

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The real risk in private credit isn't just whether borrowers default, it's what you get back when they do.