The Bank That Marked AI-Hit Software First Is Down the Least
Lender write-downs usually reach fund statements late, so sponsor-backed software refinancing through 2028 is where losses still hidden in private marks will surface.
How a bank markdown travels to your software holdings
The channel is back-leverage: loans that banks make to private-credit funds, secured by the loans those funds hold. When a bank writes down the software loans inside that collateral, it can lend less against them. The fund then has less room to refinance or extend credit to the same borrowers. In our view, bank marks lead fund marks, which makes the software values in your private credit statements the lagging number.
Semafor reports the Fed is examining collateral and risk controls at the four banks. A supervisor asking about collateral quality tends to come before tighter lending terms, not looser ones. That is our inference; the reporting describes no change in terms so far.
Why AI disruption becomes a credit problem
Much sponsor-backed software is priced per seat. Its revenue tracks customers' headcount, while its debt service does not move. a16z data cited by The Bear Cave shows the pressure: call center jobs grew about 4% a year for 15 years and are now shrinking about 4% a year. Every lost agent seat is lost revenue for seat-priced customer-service software, and the interest bill stays the same.
The substitute also gets cheaper each year a loan is outstanding. Alejandro Saucedo's ML roundup puts the inference cost of reaching a fixed benchmark score as falling roughly 13x a year. A five-year loan sized on today's seat count is exposed to automation that will cost a small fraction of today's price well before the loan matures.
What the bank tape and the take-private fights add
Markets appear to reward early recognition. Among ten large US banks in correction, JPMorgan, whose markdowns helped prompt the review, is down least at 11%. Capital One, the most consumer-credit-heavy name, is down most at 25%. Those figures come from a single widely shared social post with no stated measurement window, so read the ranking as directional.
Borrowers are also testing lender protections. EA is relying on an investment-grade rating from Egan-Jones, which The Bear Cave calls 'ever-controversial', plus Treasuries set aside for future payments, to avoid repaying bondholders at a premium after its take-private. Creditors allege a default. For anyone holding take-private debt, change-of-control protection is now being litigated rather than assumed.
What to discount, and where the opening is
The Bear Cave is published by Hunterbrook Media, whose affiliate Hunterbrook Capital is short several names the publication covers, and some of its market figures come from social posts. The Fed review itself rests on Semafor's reporting, not on a short thesis, which is why we treat it as the anchor. The weaker figures affect how big the problem is, not whether it exists.
For patient capital, the same pressure creates demand. Software that AI is disrupting but that still produces cash will need structured equity, preferred stock or holding-company financing as conventional refinancing gets harder. Whoever arrives with dry powder sets those terms.
When banks start marking down AI-disrupted software loans, the private credit fund's statement is the last place the loss shows up.
What to do
Send a software-exposure questionnaire to every private credit manager where you are an LP before Q3 statements arrive, asking for the share of the book in software, how marks compare with JPMorgan's markdowns, and back-leverage counterparties among the four banks under review.
Stress-test every sponsor-backed software holding this quarter on seat-based pricing, debt maturities through 2028 and covenant headroom, flagging borrowers that need refinancing while back-leverage terms are under review.
Review change-of-control and defeasance language in the debt documents of any take-private in your pipeline this quarter, using EA's contested bond repayment as the test case.