Blackstone and Guggenheim are pulling back on software loans in their newest collateralized loan obligations. The reason: they see artificial intelligence reshaping the industry so fast that those loans carry more risk than they used to. The move is one of the clearest signs yet that AI is now directly influencing how major asset managers build their leveraged loan portfolios.
Software loans under scrutiny
Both firms have reduced the share of software company debt included in the latest CLOs they're marketing, according to people familiar with the deals. Software loans were once considered relatively safe — steady recurring revenue, sticky customers, high margins. But the rapid evolution of AI is upending that calculus. Lenders worry that new AI tools could render existing software products obsolete or force companies to spend heavily to keep up, squeezing margins and raising default risk.
Blackstone and Guggenheim aren't alone in reassessing. The broader CLO market is watching closely. If other large managers follow suit, it could tighten credit for software companies that rely on leveraged loans to fund growth or acquisitions.
AI reshaping risk calculations
The shift reflects a deeper change in how investors think about software. For years, the sector was a favorite in CLOs — predictable cash flows, low default rates. AI changes that. It's not just about which companies build the best AI; it's about which existing businesses get disrupted by it. A company that dominates one type of enterprise software today could find its product redundant in two years if an AI-powered alternative emerges.
That uncertainty is now baked into loan underwriting. Blackstone and Guggenheim are effectively saying they'd rather miss out on some yield than get caught holding debt that turns sour because a borrower's product got overtaken by a chatbot. The decision wasn't made lightly — software loans often offer higher spreads than other sectors.
CLO market recalibrates
Collateralized loan obligations bundle dozens of corporate loans into tranches sold to investors. The composition of those portfolios matters: risk managers and rating agencies scrutinize sector concentrations. If software becomes a red flag, CLO managers may need to find replacements — maybe healthcare or industrials — which could shift pricing across the loan market.
So far, the pullback is limited to new deals. Existing CLOs still hold software loans from earlier vintages. But the message is clear: AI isn't just a tech story anymore. It's a credit story. And the firms that manage billions in leveraged loans are starting to act on it.
No one knows yet how far the trend will go. Other CLO managers are likely reviewing their own software exposure. The next few quarters will show whether Blackstone and Guggenheim were early movers or outliers.
