Software Private Credit: What Large-Cap Trends Could Mean Downstream
Software remains a significant part of private credit, but that exposure is not evenly distributed across the market.
Since 2021, software has accounted for approximately 38% of jumbo private-credit issuance involving transactions of $1 billion or more, compared with 18% across the broader direct-lending market, according to a March 2026 analysis from Future Standard using KBRA Direct Lending Deals data.¹
Future Standard also highlighted the significance of software loans originated during 2021 and 2022, when valuations were substantially higher.
The concentration at the upper end matters because private-credit economics and structures tend to change as deal size moves down market. Larger borrowers generally have greater access to competing sources of capital, while smaller middle-market borrowers typically pay higher spreads and operate under stronger lender protections. S&P Global has found financial maintenance covenants to be more prevalent in the lower middle market and less restrictive covenant packages more common among larger borrowers.³
The concentration raises a question that runs through the rest of this piece: if underwriting is changing for large software credits, what happens further down the market?
Credit Metrics Are Moving, but Performance Remains Stable
KBRA's Private Credit: Recurring Revenue Loan Metrics Dashboard, Q1 2026 tracks 102 unique obligors across 23 KBRA-rated recurring revenue loan (RRL) ABS transactions.²
Several borrower metrics softened during the quarter.
Weighted-average annual recurring revenue declined 0.9% quarter over quarter and 0.7% year over year to $177.6 million, while debt-to-ARR increased 2.5% quarter over quarter to 1.7x. Debt-to-ARR, however, remained 5.1% below its year-ago level.
Average loan-to-value was 29.7%, down slightly during the quarter but 260 basis points higher year over year.²
Liquidity showed more pronounced movement. Average balance-sheet cash declined 10.2% quarter over quarter and 17.4% year over year to $33.2 million, while the average liquidity cushion declined 13.8% quarter over quarter and 11.6% year over year to $50.1 million.²
Some caution is warranted in interpreting those figures. KBRA attributed part of the cash decline to changes in the population being measured, including the addition of transactions containing smaller companies and the removal of five larger obligors.²
Credit performance, meanwhile, has not moved in lockstep with those liquidity metrics.
KBRA reported no defaults during Q1 2026. The average all-in borrowing rate was 9.29%, unchanged quarter over quarter and 114 basis points lower year over year. PIK interest also declined on both a quarterly and annual basis.²
The picture is therefore mixed: lower liquidity and a modest quarterly increase in debt-to-ARR sit alongside lower year-over-year leverage, declining borrowing costs and PIK usage, and no reported defaults.
Software Private Credit Underwriting Is Adjusting
Loan structures may provide a more useful signal of where the market is heading.
KBRA reported that four borrowers moved from ARR-based covenants to EBITDA-based covenants during Q1, following four such transitions in the previous quarter.²
Moving from ARR-based to EBITDA-based tests places greater emphasis on earnings as borrowers mature. Two consecutive quarters of transitions do not establish a broader market trend, but they provide a metric worth following as lenders reassess how recurring-revenue businesses should be underwritten.
Origination conditions are changing as well.
KBRA reported increased loan-count concentration within rated RRL ABS portfolios, attributed in part to an AI-related slowdown in origination. KBRA views greater concentration as a credit negative, while noting that tighter asset underwriting and structural protections should provide credit enhancement as portfolios season.²
Separate KBRA Direct Lending Deals data from April also showed lenders reducing leverage and increasing spreads on software transactions amid slower software and SaaS activity.⁴ Large-cap spreads widened enough that the yield premium between lower-middle-market and large-cap direct loans fell to its lowest level since March 2025⁴ — a compression that complicates the usual pricing curve down market.
What Happens as You Move Down Market?
Under more typical private-credit conditions, moving from large-cap toward lower-middle-market borrowers generally involves a gradual increase in pricing and tighter lender protections. Smaller companies tend to have fewer financing alternatives, less scale and greater idiosyncratic operating risk. In exchange, lenders can often negotiate higher spreads, maintenance covenants and greater control over documentation.³
That relationship isn't fixed, though: recent KBRA data show large-cap spreads moving higher, particularly in software, which has temporarily narrowed some of the pricing difference between large and smaller transactions.⁴
That creates several questions for software credit further down the market.
If large-cap lenders continue to reduce leverage and increase spreads for software transactions, does the traditional pricing curve simply shift upward across smaller deals, or does the gap between large and smaller borrowers compress?
If lenders place greater emphasis on EBITDA at the upper end, does that preference migrate downstream, where many growth-stage software companies are earlier in their path toward profitability?
And if lenders become more selective about recurring-revenue structures, do smaller software borrowers compensate through higher pricing, lower leverage, tighter covenants, additional equity support, or different collateral and structural protections?
The large-cap data do not provide those answers. But they may provide an early reference point for what to watch downstream as lenders recalibrate software risk.
About Axis Group Ventures
Axis Group Ventures is a boutique investment banking and strategic advisory firm focused on global debt placement and private-market secondaries for venture- and private equity-backed companies. We work with founders, C-suite executives, and investors to develop and execute customized private-market capital solutions. For more information, visit www.axisgroupventures.com.
Sources
Future Standard, Software Exposure Concentrated in Large-Cap Private Credit, March 13, 2026. https://www.futurestandard.com/insights/chart-of-the-week/software-private-credit-issuance
KBRA, Private Credit: Recurring Revenue Loan Metrics Dashboard, Q1 2026, July 10, 2026. https://www.kbra.com/publications/yxCbkNgL/private-credit-recurring-revenue-loan-metrics-dashboard-q1-2026
S&P Global Ratings, private credit and middle-market research on loan documentation, borrower size and maintenance covenants.
KBRA Direct Lending Deals, US Insights & Outlook Report: April LBOs Anchor $19.3B in Private Credit Volume, May 11, 2026.
Disclosures & Disclaimers
This blog post is provided by Axis Group Ventures for informational and educational purposes only. It does not constitute investment, legal, accounting, or tax advice and should not be relied upon as such. Nothing contained herein should be interpreted as an offer to buy or sell any securities. Any actual offer or solicitation will be made exclusively through formal documentation provided by the relevant issuer or seller.
Axis Group Ventures is not a registered broker-dealer and does not execute, negotiate, or recommend the purchase or sale of securities. Any introductions or private-market support provided by Axis Group Ventures are conducted strictly in an advisory and consulting capacity. Readers should conduct their own due diligence and consult qualified professionals before making any financial decisions.
Investments in private securities involve significant risks, including the potential loss of the entire investment, and are typically illiquid. Past performance does not guarantee future results.
This blog post was developed using Axis Group Ventures’ proprietary market knowledge, professional insights, and years of industry experience, supplemented by large language model technology to assist with drafting and editorial refinement.
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