AI-driven software disruption puts private credit, including Apollo Global Management, under scrutiny
- Apollo Global Management faces increased scrutiny as AI threatens enterprise-software business models underpinning private lending.
- Apollo must reassess underwriting and portfolio resilience across its large private credit franchise.
- UBS warns defaults could reach about 13%, prompting Apollo to increase scrutiny of borrowers' AI disruption exposure.
AI-driven software threat puts private credit under scrutiny
Private credit managers including Apollo Global Management face heightened scrutiny as the rollout of advanced AI tools threatens enterprise software business models that comprise a large share of private lending portfolios. Anthropic’s new models are designed to perform complex professional tasks that many incumbent vendors charge for, accelerating concerns that rapid adoption could undercut software vendors’ cash flows and lift default risk among a major borrower cohort for private lenders.
The private credit market’s structure amplifies the risk, analysts say. Since 2020, unitranche and other illiquid loan structures have increasingly financed software and tech deals, and enterprise software now accounts for roughly 17% of U.S. business development company investments by deal count. That concentration means pressure on a handful of software borrowers could propagate through $3 trillion of private credit capital, raising questions about valuation, covenant protections, and the liquidity of loans that back leveraged buyouts.
For Apollo, which runs one of the industry’s largest private credit franchises, the development prompts an immediate need to reassess underwriting and portfolio resilience. Market-watchers and academics caution that many private credit portfolios already show signs of stress from liquidity shortfalls and loan extensions; the AI-driven threat becomes an additional stressor that can force renegotiations, heighten cure and covenant breach risk, and require more aggressive stress-testing and valuation reserves. Lenders may also face tougher decisions over workout strategies for unitranche loans that lack the liquidity of public markets.
Clear Channel takeover underscores private capital appetite
Separately, Mubadala Capital and TWG Global announce an all-cash deal to acquire Clear Channel Outdoor for an enterprise value of $6.2 billion, committing about $3 billion of equity to reduce leverage and fund growth initiatives. The transaction highlights continued private capital appetite for complex, asset-heavy businesses even as lenders reassess risk in tech-heavy portfolios.
Market backdrop and risk estimates
Industry data and lenders’ advisers note that enterprise software’s prominence in private credit portfolios is a recent trend, increasing the sector’s systemic importance to private lending. UBS warns that in an aggressive disruption scenario, U.S. private credit default rates could climb toward roughly 13%, underscoring why managers such as Apollo are sharpening focus on borrower exposure to AI-driven disruption.
