Key Takeaways

  • Enterprise software debt was historically treated as top-tier collateral because sponsors could quickly slash SG&A and R&D budgets to cover debt service during downturns.
  • Anthropic released new Claude capabilities in February 2026, triggering sudden existential obsolescence fears across enterprise software portfolios.
  • Broadly syndicated software loan prices fell immediately from 94 cents to 87 cents on the dollar following the AI announcements.
  • The software sell-off, paired with Middle East geopolitical escalation, accelerated the HALO trade: hard assets and low obsolescence businesses.

The Collapse of Software as Prime Collateral

For years, private credit lenders favored recurring-revenue enterprise software above almost every other asset class. The credit underwriting was straightforward. If macro conditions deteriorated, a sponsor did not need to run for exits. They could strip out research and development, freeze marketing spend, cut general overhead, and convert gross margins into cash flow to service high-cost unitranche debt.

That math stopped working in February 2026. As Kenny Tang pointed out, Anthropic released upgraded capabilities for Claude, showing how autonomous coding and agentic workflows could replace software seats and dismantle traditional SaaS pricing. The anxiety was not about a cyclical dip in sales renewals. Tang noted that the market faced an existential threat: “two things actually hit impacted the private credit market I think one is the software AI disruption issue right in February when Anthropic had mentioned you know they They released Claude, the new version of Claude, and it was just, you know, impacting the whole market across the board.” (play from 33:01)

Devin Mathews captured the mood shift across credit committees: “What happened in February was, oh, these things might actually just go out of business. They might, you know, be obliterated by that.” (play from 34:01)

The HALO Trade Replaces Recurring Revenue

Credit desks responded immediately to the threat of software obsolescence. As Tang tracked in the broadly syndicated loan market, “bid prices went down from 94 to 87 like straight down.” (play from 35:57) In private credit, illiquidity masked headline marks, but secondary pricing and syndicated trading told the real story. Lenders suddenly realized that trimming costs cannot save an enterprise debtor whose core software product can be rebuilt by autonomous agents in an afternoon.

This panic coincided with rising tensions in the Middle East, sparking a rapid flight to collateral backed by physical realities rather than digital IP. As Mathews described, capital rotated directly away from code into what lenders call the HALO trade: “then we have the halo trade, uh, hard assets, low obsolescence. So, people cycle into this hard assets, low obsolescence trade coming out of the AI scare right into the Gulf War” (play from 34:21)

Instead of bidding on SaaS platforms trading at eight times recurring revenue, credit funds began reallocating toward industrial services, equipment fleets, packaging, and infrastructure. These businesses lack 80% gross margins, yet they hold physical assets and machinery that autonomous software cannot erase.

Why It Matters

The repricing of software debt marks the end of software's favored status in credit underwriting. When lenders lose faith in the terminal value of an IP-based borrower, enterprise value coverage vanishes, forcing direct lenders to demand physical collateral or drastically lower debt multiples. As private debt allocations shift toward hard assets with low obsolescence, sponsors holding highly indebted software companies will find refinancing windows narrow and debt costs spike.