Global Default Monitor: Software woes, BDC selling putting pressure on Loans

Research evidence excerpt

Global Default Monitor: Software woes, BDC selling putting pressure on Loans

Deutsche Bank

Research

Global Credit Strategy Date

30 June 2026

IG & HY Strategy

Global Default Monitor: Software woes,

BDC selling putting pressure on Loans

Steve Caprio

Dispersion & decompression were the main themes of our last quarterly Outlook,

Head of European and US Credit Strategy

and Figure 1 below highlights one of the most extreme source of dispersion in global +44-20-754-16176

credit markets at the moment. US Lev Loan software spreads are now trading at

808bps through June 26, wider than March 2020 levels, as credit investors Karthik Nagalingam

US Credit Strategist

increasingly price AI disruption (plus the additional fear of Fed hikes) as a fate worse

+1-212-250-0521

than COVID for the sector. However, ex-software loans spreads are still only trading

at 384bps, a mere 10bps off the post-COVID tights. We wrote in our Annual Default Cem Keltek

Study earlier this month that software spreads at current levels imply that the rating European Credit Strategist

agencies are behind the curve. +49-69-910-48370

Emilie Calder

But the broader loan market (including ex-software names) also faces a headwind European Credit Strategist

from BDC selling, as seen in Figure 1 below as well. Using the 8 largest private BDCs +44-207-330-7500

as a proxy, we estimate that US BDCs shed their level 2 holdings (largely leveraged Asim Kaul

loans) by 6% in Q4’25 & 18% in Q1’26, after a multi-year run of accumulating up to Research Associate

$100-160bn of leveraged loans in total. With all indications that US BDC liquidity is

worsening in Q2, given continued outflows AND slowing inflows, the pressure

points are building. At the very least, they certainly point to the global leveraged loan