Private Credit's Software Problem Will Not Arrive Until 2028

What's New

Private credit's software stress is real, but the maturities that will force it into the open do not arrive in size until 2028. Meghan Neenan, Head of North American Financial Institutions at Fitch Ratings, argues this in a conversation with Justin Patrie on Above the Fray. Fitch stressed BDC software books with a 25% write-off. Most portfolios still held their asset coverage cushion at 50%. Investors should track renegotiations as 2028 approaches and favor BDCs backed by managers with workout teams.

Why It Matters

Recent headlines treat software exposure and semi-liquid redemptions as signs of a system under strain. Neenan calls private credit systemically relevant without being a systemic risk. Most funds carry little leverage, cap redemptions and avoid mark-to-market financing, so forced selling is unlikely. Her view pushes back on warnings from the Financial Stability Board and the Bank for International Settlements. Fitch rates BDCs, and more private vehicles now seek ratings, so a measured view of the sector suits its business.

By The Numbers

• 1.1%: BDC net realized losses as a share of average portfolio value in 2025. The 5-year average was 30 basis points.

• 16.6%: The net loss at the worst-hit BDC in Fitch's sample, at the far end of a wide spread.

• 20%+: Average software exposure in BDC portfolios, by Fitch's estimate.

• 1.7%: Software debt due next year at the largest BDC, which has none maturing this year.

Memorable Quotes

• "We believe it's systemically relevant, but not a systemic risk at this time." Fitch's position on the sector in one line.

• "From our view, this is not a near-term story. It's going to be certainly a medium-term story to play out." Why she reads software stress through the maturity schedule.

• "With not a lot of M&A activity, there's not a lot of repayment of that PIK." The admission that deferred interest keeps building while exits stay shut.

• "What's really going to matter going forward is platform dispersion." Her forecast for how the stress will sort managers.

The Wrap

Neenan's case depends on lenders and sponsors renegotiating software loans before the 2028 wall. Affiliated workout teams would then absorb the losses over time. The case weakens if M&A stays closed, since PIK keeps accruing and maturities bunch together. A second wave of redemptions would test whether managers hold the 5% cap. Fourth-quarter flow data will show whether redemptions keep easing. The 2028 maturities will settle the software question.