Something shifted in the financial markets this week that goes beyond stock prices. For the first time, lenders are treating AI disruption as a credit risk -- factoring it into borrowing costs, loan covenants, and refinancing terms for software companies across the board.
According to a Reuters report published today, there are currently zero leveraged loan deals for software companies in the pipeline. Not a slowdown. A complete freeze. Companies and banks are waiting for trading levels on existing debt to recover from losses that started in late January when AI disruption fears reached a tipping point.
This is not a theoretical exercise anymore. The credit markets are repricing the entire software sector.
The Numbers Behind the Freeze
The scale of what is happening in software debt markets is striking. UBS head of credit strategy Matthew Mish told Reuters that AI disruption risk will be "increasingly reflected over 2026 to early 2027," especially for lower-quality credit sectors with elevated refinancing needs.
Here is what the data looks like:
- $260 billion in outstanding tech leveraged loans, with technology borrowers making up 17% of the total leveraged loan market
- 50% of software sector loans carry a B- or lower credit rating, according to Morgan Stanley -- the zone where defaults are most likely
- $17.7 billion in technology-related corporate loans fell to distressed levels (below 80 cents per dollar) within just four weeks at the start of February
- UBS projects default rates for software companies could rise to 3-5%, compared to the market's baseline expectation of 1-2%
The software index (.SPLRCIS) is already down 20% year-to-date. Salesforce has lost about a third of its value since January. ServiceNow has plummeted more than 34%. Microsoft has shed roughly a fifth.
But the stock price story has been building for weeks. What changed this week is that the debt markets caught up.
Anthropic's Security Tool Triggered the Latest Wave
The catalyst for the most recent selloff came from an unlikely place: a research preview. On Friday, Anthropic shipped a security scanning tool built into Claude Code that can find vulnerabilities in production codebases that traditional scanners miss entirely.
The market reaction was immediate and severe. On Monday, according to CNBC:
- CrowdStrike and Zscaler each dropped about 9%
- Netskope declined nearly 10%
- GitLab and JFrog (code scanning platforms most directly threatened) fell 8% and 25% respectively
- The iShares Cybersecurity ETF (IHAK) dropped nearly 4%
- The Global X Cybersecurity ETF (BUG) fell to its lowest level since November 2023
CrowdStrike CEO George Kurtz pushed back on LinkedIn, arguing that "an AI capability that scans code does not replace the Falcon platform -- or your security program." Palo Alto Networks CEO Nikesh Arora said he was "confused" why the market viewed AI as a threat to cybersecurity.
But the market is not listening to reassurances right now. It is pricing in disruption.
Why This Matters Beyond Wall Street
If you are a small or mid-sized business, you might think this is a Wall Street problem. It is not. Here is why the software debt freeze affects you directly:
Your Software Vendors May Get Squeezed
When software companies cannot refinance debt cheaply, they cut costs. That means smaller support teams, slower feature development, and potential service disruptions. If your business depends on a mid-market SaaS platform backed by leveraged debt, watch for signs of financial stress. Companies with upcoming 2027 maturities face the biggest pressure.
Pricing Models Will Change
Software companies under financial pressure will look for ways to extract more revenue from existing customers. Expect price increases, reduced free tiers, and aggressive upselling. The era of "grow now, profit later" SaaS economics is being forcibly unwound by lenders demanding stronger covenants and clearer profitability paths.
The Acquisition Wave Is Coming
PineBridge Investments portfolio manager Jeremy Burton told Reuters he does not "really see software and business services as being hot sectors for issuance over the next year." When companies cannot borrow to grow, they sell. Expect a significant increase in M&A activity as distressed software companies become acquisition targets. That can mean sudden platform changes, migrations, and integration headaches for customers.
AI-Native Tools Get a Tailwind
The flip side of this disruption is opportunity. As traditional software vendors face financial headwinds, AI-native alternatives become more attractive -- not just because they are better, but because their cost structures are fundamentally different. A tool built around an AI model does not carry the same engineering overhead as a platform built over a decade of accumulated code.
What Smart Businesses Should Do Right Now
This shift calls for practical risk management, not panic. Here is a checklist:
Audit your software stack for vendor risk. Identify which tools come from companies that are heavily leveraged or recently went through private equity transactions. These are the vendors most exposed to refinancing pressure. Cross-reference with tools that AI alternatives could replace. We covered how to evaluate your AI integration options in an earlier guide.
Lock in favorable contract terms now. If you are up for renewal with a SaaS vendor, negotiate longer terms at current pricing before the squeeze drives prices up. Vendors under financial pressure may accept lower rates to lock in guaranteed revenue.
Start testing AI-native alternatives for commodity tasks. Code scanning, basic security monitoring, content generation, and customer service automation are all areas where AI tools now match or exceed traditional software. The Anthropic security scanner is just one example. Building familiarity now means you can move quickly if a vendor runs into trouble.
Watch the credit signals. You do not need a Bloomberg terminal to track this. Watch for vendor communications about "platform consolidation," executive departures, or sudden feature deprecation. These are often early indicators of financial stress filtering down from the debt markets.
The Bigger Picture
What we are seeing is the financial system catching up to a technological reality that builders and operators have understood for months: AI is not augmenting the software industry -- it is restructuring it. When credit markets price in higher default risk for an entire sector, that is not sentiment. That is structural repricing.
The SaaS reckoning we covered last month was about stock prices and analyst predictions. This week it moved to the debt markets. That is a deeper, slower-moving signal -- and it suggests the disruption is accelerating, not stabilizing.
For small businesses, the message is clear: the software tools you rely on today may not be the ones you rely on tomorrow. Not because the technology failed, but because the business models behind them are being repriced in real time. The companies that adapt -- both vendors and customers -- will come through this transition stronger. The ones that assume nothing has changed will get caught in the undertow.
Barista Labs helps small and mid-sized businesses navigate AI transitions without enterprise budgets or multi-year consulting engagements. If your software stack is starting to feel fragile, let us help you build a resilient plan.