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.

Years of low interest rates encouraged risk-taking, resulting in a large pool of low-rated loans (B3/B-). Now, sustained higher rates are stressing these weak capital structures, creating a boom in distressed debt opportunities even as the broader economy performs well.

The market is not heading for a 2008-style crisis with massive default spikes. Instead, it will experience a sustained period of 3-5% default rates for several years. This cumulative "slow burn" will be painful as many over-leveraged companies, financed in a zero-interest-rate environment, face restructuring.

Companies with debt maturing in 2028 must refinance by early 2027 to avoid facing a probable downgrade to CCC. This rating drop would make them ineligible for purchase by most CLOs, which constitute two-thirds of the loan market, forcing a desperate and much more costly refinancing.

Despite strong current performance driven by technicals, the real risk for leveraged loan issuers is their ability to refinance in 2-3 years. This looming "refinancing wall" could force many companies back into the high-yield market, creating a new wave of opportunities for credit investors.

A huge volume of corporate and personal debt was refinanced at near-zero rates in 2020-2021 with 5-7 year terms. With 50% of all debt rolling over in the next 3 years at much higher rates, a severe and unavoidable drag on economic liquidity is already baked into the system, regardless of future Fed actions.

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.

The prolonged period of near-zero interest rates encouraged businesses, especially in private equity, to take on massive leverage. These companies, structured for cheap debt, are now struggling to survive in a normalized rate environment, creating a significant systemic risk.

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.