Credit-market participants may be underestimating the potential recovery from defaults by software-sector companies, and private credit may play a role as well, according to Goldman Sachs. Leveraged finance investors have been focused on AI-related disruption risks to legacy software business models, the firm said. Some credit capital structures formed in a period of peak valuations and lower interest rates may also need to be “right sized,” it said. “Many market participants expect low recoveries in the event of a software default, but our analysis suggests that view may be too simplistic (and negative),” strategists led by Amanda Lynam wrote in a note Thursday. “Despite its existing exposure, we see scope for private credit to deploy its sizable amount of dry powder in response to potential financing market dislocations.” The software sector has been facing challenges due to expected disruption from AI. Approximately $17 billion worth of US software buyouts were closed or announced during the first five months of this year, PitchBook Data showed, only 17% of 2022’s peak. The industry group is facing a persistent sentiment overhang amid pressure on loans in the early part of 2026, Goldman said. And it’s facing a steep maturity wall of loans coming due in 2028, according to the note. The strategists do see more resilience in some areas of the sector including data infrastructure, cybersecurity and “good sticky” application software. “We expect more dispersion, not broad deterioration, as investors assess the industry on a more granular basis,” they said.
