The software sector faces a significant, under-the-radar credit risk. Over $330 billion in high-yield and leveraged loan debt is due for repayment by 2028. This looming 'maturity wall' creates a source of potential 'landmines' for investors as software stocks are already beginning to roll over.

The market overestimates the immediate impact of AI on software companies, creating an opportunity in their debt. While the long-term threat is real (5-15 years out), most companies will have at least one chance to refinance their loans before facing an existential crisis from AI disruption.

Liability Management Exercises (LMEs) that extended debt maturities a few years ago are proving to be temporary fixes, not cures. Many of these same companies are returning for "LME 2.0" because fundamental business issues—like weak consumer demand or high input costs—were never resolved, making the initial "kick the can" strategy ineffective.

The market penalizes even stable, cash-generative businesses for high leverage (e.g., >3.5x debt/EBITDA). This creates a "distress multiple," as investors price in tail risk from events like interest rate spikes. Deleveraging is critical to remove this discount and achieve multiple expansion.

When investment banks halt a major debt deal, as with Qualtrics, it means they couldn't find buyers. This signals a severe lack of confidence from investors, not in the company's current solvency, but in its ability to service that debt five years from now amid market shifts and higher interest rates.

With fewer traditional credit cycles, the most fertile ground for distressed investing lies in industry-specific downturns caused by technological or policy shifts. These "microcycles" offer opportunities to invest in good companies working through temporary, concentrated disruption.

The concentration of software loan maturities in 2028 is not an impending cliff but a timeline for a market shakeout. Over the next few years, AI's impact will differentiate companies with durable business models that can refinance from those that are existentially threatened and will likely default.

Beyond the long-term threat of AI disruption, highly leveraged, lower-quality software companies funded by private credit face a more immediate problem: a $65 billion wall of debt maturing by 2028. They must refinance this debt amid high uncertainty, creating significant near-term risk separate from AI's eventual impact.

For underperforming companies, a gap often exists between the market-clearing leverage for senior debt (e.g., 5x EBITDA) and their current debt load. Specialized investors provide junior capital to fill this "two-turn problem" or "air bubble," facilitating a refinancing that senior lenders alone won't support.