Software Poses 'All-Time' Risk To Speculative Credit, Deutsche Bank Warns (bloomberg.com)
- Reference: 0180762388
- News link: https://tech.slashdot.org/story/26/02/09/2045217/software-poses-all-time-risk-to-speculative-credit-deutsche-bank-warns
- Source link: https://www.bloomberg.com/news/articles/2026-02-09/software-among-all-time-concentration-risks-to-junk-deutsche
> They comprise $597 billion and $681 billion of the speculative-grade credit universe, or about 14% and 16% respectively, analysts led by Steve Caprio wrote in a Monday note. Speculative debt spans high-yield debt, leveraged loans and US private credit.
>
> That's "a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase," the analysts wrote, with "a potential impact that would rival that of the Energy sector in 2016." Unlike in 2016, pressures would likely first emerge in private credit, business development companies and leveraged loans, with the high-yield market weakening later, the analysts added.
>
> The rapid adoption of artificial intelligence tools risks further weighing down multiples and revenues for software-as-a-service firms, while the US Federal Reserve's hawkish stance since 2022 has pressured cash flows, the analysts wrote. For instance, software payment-in-kind loan usage has risen to 11.3% in BDC portfolios, over 2.5 percentage points higher than the already elevated index average of 8.7%, according to Deutsche. PIK deals typically allow borrowers to pay interest in more debt rather than cash.
[1] https://www.bloomberg.com/news/articles/2026-02-09/software-among-all-time-concentration-risks-to-junk-deutsche
We will not learn (Score:4, Insightful)
"PIK deals typically allow borrowers to pay interest in more debt rather than cash."
Reminds me of the economist I was listening to on the radio in 2006 who claimed we were in a new economic era where people would simply use the never ending increase in their home equity to finance their entire lives. Then 2007 arrived. That didn't end well.
I dunno if it new crops of the gullible coming online, or short memories of huge numbers of people, but we simply refuse to learn from our failures, just repeat them.
Re: (Score:2)
It's clearly both things. Everyone thinks they're a fucking genius.
Re: (Score:2)
> It's clearly both things. Everyone thinks they're a fucking genius.
I agree with that.
But how is it that we keep repeating the same things that anyone with a memory knows is doomed to failure? I'm certainly not the sharpest pencil in the box, but I pay attention and do have a good memory. Maybe greed destroys memory, and the noobs just haven't developed the experience based cynicism yet.
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> "PIK deals typically allow borrowers to pay interest in more debt rather than cash."
> Reminds me of the economist I was listening to on the radio in 2006 who claimed we were in a new economic era where people would simply use the never ending increase in their home equity to finance their entire lives. Then 2007 arrived. That didn't end well.
The problem is it didn't end well, or really end.
Loaning to those who should have never qualified with mortgages was the old busted. The new shitness is loaning rolling mortgages (car loans) to those who should have never qualified. And America has managed to fuck themselves so hard with that narcissistic nonsense that loan failures could become the literal cause of another financial crash. Most are now rolling around with two fucktons of negative equity ready to roll it into another loan when their new
Re: (Score:2)
>> "PIK deals typically allow borrowers to pay interest in more debt rather than cash."
>> Reminds me of the economist I was listening to on the radio in 2006 who claimed we were in a new economic era where people would simply use the never ending increase in their home equity to finance their entire lives. Then 2007 arrived. That didn't end well.
> The problem is it didn't end well, or really end.
> Loaning to those who should have never qualified with mortgages was the old busted.
Sure was. I knew how the subprime bubble would end when I saw the first idiotic 250 per month mortgage on million dollar loans - on Yahoo. I knew it was imminent when I read the story about the 80 year old man with a 50 year mortgage. Why do I see that stuff immediately, when others could or would not.
I really had to laugh when one of the very few economists that predicted what I knew would happen (only years later on his part) was hailed as some kind of genius.
> The new shitness is loaning rolling mortgages (car loans) to those who should have never qualified.
It's kinda like credit card debt. Do we ev
SaaS is on the ropes (Score:1)
When you can vibe code a lot of this stuff for internal use and its "good enough" a SaaS company's offerings don't look as good.
Re: (Score:2)
What could possibly go wrong with firing all of IT and all technical staff and replacing everything with one intern who can vaguely describe needs?
Deutsche Bank and risk assessment? (Score:2)
They have NO IDEA.
This is a conservative, attributable list of Deutsche Bank costs tied directly to risk, controls, compliance, and governance failures over roughly the last 25 years.
These are not trading losses from bad bets, but money burned because risk assessment and control failed.
1999–2004, dot-com and analyst conflict scandals, settlements and compliance costs about 1.4 billion USD.
2008–2017, US mortgage crisis and RMBS mis-selling, DOJ settlement 7.2 billion USD.
2015, LIBOR and interest-
And who isn't royally shafted? Those who ... (Score:2)
... understood FOSS from day one and wouldn't touch anything proprietary for anything mission-critical with a ten-foot pole ever since. All the setups I've built in the last 25 years won't even miss a beat when the entire SaaS landscape finally turns into the nuclear wasteland it was always destined to be.
I will enjoy the fireworks though, thank you for those. Getting the popcorn ready as we speak.
Compounding problems (Score:2)
Most of the time real problems are caused because people combine multiple questionable issues.
The housing crisis in 2008 was often caused by the Liar Loan. This was when a bank lied to the customer about how interest rate changes could affect their payments while also letting the customer lie to them about how much money they made. If either one of them told the truth, the problems would have been much less. But because both the banks and the customers used questionable methods, the problems compounded
The speculative-grade debt universe (Score:4, Interesting)
‘The software and technology sectors pose one of the all-time great concentration risks to the speculative-grade credit market, according to Deutsche Bank AG analysts.
They comprise $597 billion and $681 billion of the speculative-grade credit universe, or about 14% and 16% respectively, analysts led by Steve Caprio wrote in a Monday note. Speculative debt spans high-yield debt, leveraged loans and US private credit.
That’s “a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase,” the analysts wrote, with “a potential impact that would rival that of the Energy sector in 2016.”
Unlike in 2016, pressures would likely first emerge in private credit, business development companies and leveraged loans, with the high-yield market weakening later, the analysts added.
The rapid adoption of artificial intelligence tools risks further weighing down multiples and revenues for software-as-a-service firms, while the US Federal Reserve’s hawkish stance since 2022 has pressured cash flows, the analysts wrote.
For instance, software payment-in-kind loan usage has risen to 11.3% in BDC portfolios, over 2.5 percentage points higher than the already elevated index average of 8.7%, according to Deutsche. PIK deals typically allow borrowers to pay interest in more debt rather than cash.
“The reality today has now changed from when many of these firms were initially financed,” the analysts wrote. “The SaaS value creation model is not yet mature enough to withstand a rapid rollout of AI tools.”‘’
Re: (Score:2)
To try to summarise without quoting...
Some SaaS* companies borrowed money on crazy terms, which are highly vulnerable to "blips" in the market. A downturn, perhaps like that seen in 2007, or in Covid could cause a number of those companies to fail because there's not yet enough value created (in other words: money made in a war chest) by them to withstand it.
(* I'll bet it's not just SaaS - I'm sure every man and his dog with an AI or Crypto business has been trying to do the same thing)
To simplify even fur
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These software companies can use AI to lower their operating costs, i.e., human capital, as a debt management strategy. You just need an unlimited number of employees.
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SaaS is uniquely challenged though. AI is going to make developing software cheaper, if it has not already. Most of the SaaS industry is just CRUD apps with a ton of lipstick slathered on. That is the kind of stuff that AI is really good at building an full stack architect who can understand, read, correct, validate AI outputs and do good prompts, build hooks etc probably can extend and support without the help of the junior programmers in the very near future. Those same companies largely don't host anyt
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I agree there are lots of chancers, which by the looks of things are all financed really badly. However, SaaS isn't inherently the problem. If you had a shaky product before AI, then it's true AI makes it more shaky, but a solid product and solid financials work no matter what.
I have no idea about this company, but Doist (who run todoist.com) somehow makes money out of a to-do app (and have been at it for years and years). It's the thing just about every software tutorial tells you how to build - and yet so