BlackRock: software loan markdowns reflect AI uncertainty, not weaker Ebitda

Markdowns on software loans have accounted for roughly two-thirds of private credit's total unrealised losses since the fourth quarter of 2025, according to BlackRock's latest quarterly private credit outlook.

The weighted average valuation of first-lien software loans fell from near par at the end of 2025 to around 97 per cent of cost in the second quarter of 2026. Moves in other sectors were far more modest. Those unrealised losses have been a recent headwind to total returns in the asset class.

Media and entertainment loans carried the next-largest markdowns, followed by consumer services, according to Cliffwater Direct Lending Index data cited by the asset manager. Software has been under pressure since February's so-called SaaSpocalypse, when the rapid pace of AI development called the future of the industry into question.

BlackRock's reading is that the marks reflect uncertainty over the terminal value of these businesses amid AI-related disruption rather than a broad deterioration in software fundamentals.

Data from Lincoln International, cited in the outlook, shows 68 per cent of software borrowers posted positive year-on-year growth in last-12-month adjusted Ebitda in the second quarter of 2026. That compares with 64 per cent of the wider pool of companies Lincoln tracks. Average adjusted Ebitda growth was 6.8 per cent for software borrowers, higher than the 5.6 per cent recorded across the wider pool.

Lincoln's data also points to dispersion inside software lending. Software borrowers with higher retention rates tend to support greater leverage, which BlackRock said highlighted meaningful differences in business quality.