Loan investors are now pushing back against borrower-friendly terms in the leveraged loan market, causing credit spreads to widen, debt issuance delays, and higher borrowing costs for private equity firms and AI-related companies. UBS models stress scenarios where default rates rise from 1-2% under baseline conditions to 3-5% in a moderate AI disruption scenario, and up to 13% in an aggressive scenario. US banks have raised interest rates on loans extended to private credit funds, creating a cost chain that flows downstream to portfolio companies. Major private credit managers including Blue Owl Capital, Ares Management and Blackstone have seen significant share price declines, while AI infrastructure company CoreWeave faces investor pushback on its debt terms. Private credit has grown into a roughly $2 trillion asset class over the past decade and carries substantial exposure to the software sector.
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