Debt Investors Reduce Exposure to Software Companies

Financial market outlets describe the stalled Qualtrics deal and the looming EA syndication as signs that lenders misjudged how quickly sentiment toward software debt would sour. They say banks now face a choice between taking losses to clear these positions or holding the loans and tying up balance sheet capacity. Many expect tougher terms and higher funding costs for future private equity deals in the software sector if these sales struggle.

• •JPMorgan and partner banks mispriced the Qualtrics financing relative to current software risk.
• •The $18 billion EA package could force banks to offer deep discounts to attract buyers.
• •Private equity sponsors planning software buyouts will need to accept lower leverage or higher interest costs.
• •Bank balance sheets could be constrained if they are stuck warehousing large software exposures.
• •Weak demand for these deals would slow the pipeline of new leveraged buyouts in technology.