AI disruption in private credit: exposure to software firms in BDCs

by Fernando Avalos, Giulio Cornelli, Egemen Eren Business development companies (BDCs) have lent around $115 billion to software firms, which represents about a fifth of all their lending and over 80% of their fast-growing technology portfolios. Borrowers’ revenue uncertainty posed by generative artificial intelligence has not affected these loans yet, and neither BDCs nor their equity investors have priced software exposure differently. Recently, credit spreads have narrowed, reducing the buffers to absorb losses, and a few large BDCs are exposed to a shared pool of borrowers, though low leve