CLO managers brace for software loan maturity wall

“At least half of that 2028 maturity wall was put together in much looser financial conditions,” says Michael Htun, head of CLOs and structured credit at Kartesia. “And you do start to think, if they haven’t already refinanced the debt in what has been a benign default environment and a tight credit spread environment, then there’s probably a reason for that.”

In the post-Covid years, software companies were highly attractive due to their high revenues and growth potential. But technology moves at pace, and the past five years have seen AI go from an esoteric curiosity to a disruptive force that threatens to undermine many software-based business models.

According to Fitch data, as of February 2026, technology-software was the top industry for broadly syndicated loan CLOs in the US, with exposure of around 13%. Even then, the percentage of these loans classified as distressed was believed to be in the double digits. Under normal market conditions, managers would refinance, but this is becoming increasingly difficult.

Htun adds that, as a result, Kartesia would much rather play in the new issue, longer-­duration space, than have a lot of exposure to the 2028 maturity wall. This is a view echoed by other investors in off-record conversations. They have expressed concerns about the prospect of low recovery rates, particularly in the SaaS subsector, which is asset-light.

While US CLOs tend to have more exposure to this part of the market, European CLOs are not immune to this risk.

“Collateral maturities for European CLOs are heavily skewed toward 2028 and beyond, increasing sensitivity to refinancing conditions,” says Javier Hevia Portocarrero, senior credit officer at Moody’s.

According to an October 2025 study on speculative grade refinancing risk by Moody’s, approximately USD 294bn of rated EMEA speculative grade debt matures in 2028. That is the largest single year in the 2026-29 period. The ratings agency has reported that software in European CLO portfolios represents around 6% of collateral.

A lot of these deals will start launching some form of refinancing 18-24 months ahead of maturity, and so it will soon become apparent which managers are or aren’t able to refinance. One manager has described 2026 as “the year of reckoning” when strong investor relationships and intensive risk management will be rewarded. However, there is a ticking clock in the background of these refinancing discussions — it is only a matter of time before the rating agencies start issuing downgrades.

A recent analysis from BNP Paribas noted that 55% of software loans in the US and 45% of such loans in Europe are rated B-, with between 15% and 20% set to reach maturity before the end of 2028.

“We view this part of the market as most vulnerable to refinancing risks in the medium term,” the BNP Paribas report stated. A downgrade of a BBB tranche to BB could lead to selling pressures from rating-sensitive investors, BNP added, although this scenario would still be “manageable for the market”.

In a scenario of 50% of software downgrades to CCC, only around 17% of BBB tranches would be downgraded, BNP predicted.

The overarching view is that there will be clear winners and losers in this space, and it will become much more difficult to hide poor underwriting as the maturity wall draws closer and downgrade activity begins.