Private Credit News Weekly Issue #88: Software Exposure Hidden in Plain Sight, Bad PIK Hits 6.4%, and Apollo Trades $10 Billion

Bloomberg finds $9 billion in software loans misclassified across major BDCs as deferred interest climbs and trading infrastructure expands

Feb 16, 2026

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The software exposure is bigger than anyone admitted.

Bloomberg reviewed thousands of holdings across seven major BDCs and found at least 250 investments worth more than $9 billion weren’t labeled as software loans by one or more lenders, even though the companies borrowing the cash describe themselves as software firms. The discrepancies reveal a fundamental problem: when industry classification lacks consistency, investors can’t accurately assess concentration risk.

Consider the examples. Pricefx calls itself “The #1 Leading Pricing Software” on its homepage, mentions software more than a dozen times on the first screen alone. Sixth Street classifies it as “business services.” Kaseya describes itself as an “IT management software” company. Apollo labels it “specialty retail” while Blackstone and Golub place it in software. Restaurant365 calls itself a “back-office restaurant system software” provider. Golub categorizes it as “food products” alongside Louisiana Fish Fry and Bazooka Bubble Gum makers. Ares groups it with software and services.

The pattern extends across the industry. Raymond James analyst Robert Dodd notes: “The software classification in a BDC schedule of investments is only going to include generally industry agnostic software. It understates the exposure to it as a business model, and it’s not negligible.”

This matters because Barclays estimates software now makes up about 20% of all BDC loans, their largest sector exposure. If another $9 billion sits misclassified in other buckets, the concentration is materially higher. The classification problem becomes even more critical as bad PIK, deferred interest payments not planned at origination, hit 6.4% of private loans last quarter, up from 2.5% in Q4 2021 per Lincoln International. Companies with bad PIK saw loan-to-value ratios jump from 47% to above 75% as equity cushions compress.

Yet capital keeps deploying despite the uncertainty. Blue Owl led a $1.4 billion loan for OneStream at 475 bps even as the sector faces AI disruption. The financing demonstrates selective confidence in mission-critical enterprise software serving CFOs and finance teams. Apollo traded almost $10 billion of investment-grade private loans in 2025, building its marketplace for syndication and real-time pricing. And Coller with Ares closed a $1.3 billion credit secondaries continuation fund as that market nearly doubled to $20 billion in annual volume.

The responses from industry leaders reflect the tension. Ares CEO Mike Arougheti called AI and private credit fears “odd” and “frustrating,” noting 97% of wealth clients haven’t asked to redeem. The Bank of England is considering third-party help gathering data for its private markets stress test as participation expands from 16 to 40 firms. And Carlyle partnered with Sixth Street on a $600 million CLO equity joint venture targeting mid-teens returns to boost BDC earnings as rates compress margins.

The classification problem reveals what happens when an opaque industry lacks consistent reporting standards. Software isn’t going away. The question is whether lenders know how much they actually own.

Key Market Themes

1. Bloomberg Exposes $9 Billion in Hidden Software Exposure

Bloomberg reviewed thousands of holdings across seven major BDCs including Sixth Street, Apollo, Ares, Blackstone, Blue Owl, Golub Capital, and HPS Investment Partners and found wide variation in how investments tied to software are categorized. At least 250 investments worth more than $9 billion weren’t labeled as software loans by one or more lenders, even though the companies describe themselves that way.

The examples illustrate the problem. Pricefx’s website mentions “software” more than a dozen times on the homepage. Sixth Street classifies it as “business services.” Apollo categorizes Kaseya, a self-described “IT management software” company, as “specialty retail” while Blackstone and Golub place it in software. Golub labels Restaurant365, which calls itself a “back-office restaurant system software” provider, as “food products” alongside Louisiana Fish Fry and Bazooka Bubble Gum. Ares groups it with software and services.

The inconsistencies appear even within single firms. At least four companies in Blue Owl’s largest publicly traded BDC are classified under “chemicals,” “infrastructure and environmental services,” and “business services” but labeled “software” in its technology-focused fund. A Blue Owl spokesperson said “each of our funds has a different investment strategy, so the industry classifications can differ.”

Why It Matters

The discrepancies make it harder for investors to gauge sector concentration at a time of heightened scrutiny. Barclays estimates software comprises about 20% of all BDC loans, making it their largest sector exposure. By comparison, software is about 13% of the US leveraged loan market per Morningstar LSTA. If another $9 billion sits misclassified, actual exposure is materially higher. Raymond James’ Dodd notes: “Software is a theme in its own right, and that classification scheme breaks down even if historically it was helpful.” The problem takes on added weight in a market known for limited transparency where labels managers assign shape how investors gauge concentration risk and vulnerability to AI disruption.

2. Blue Owl Leads $1.4 Billion OneStream Loan Despite Software Selloff

A group of private credit firms led by Blue Owl provided a $1.4 billion annual recurring revenue loan to help Hg finance the $6.4 billion acquisition of OneStream, the financial software maker that went public in 2024. Goldman Sachs Alternatives, Golub Capital, HPS Investment Partners, and Blackstone joined Blue Owl in the financing.

The debt is being offered at 475 bps over benchmark. Another $850 million is available through a revolving credit facility and delayed-draw term loan. Hg announced in January it was taking OneStream private along with minority equity investors General Atlantic and Tidemark.

OneStream makes software used by chief financial officers and finance teams broadly. The financing package comes as private credit firms face scrutiny for software exposure following Anthropic’s release of AI coding tools that triggered selloff in the sector.

Why It Matters

The $1.4 billion OneStream financing at 475 bps demonstrates capital deployment continuing despite software sector volatility. Blue Owl leading the deal shows selective confidence in specific software businesses even as broader sentiment deteriorates. The annual recurring revenue loan structure tailored to subscription-based business models reflects lenders’ continued belief in certain software fundamentals. Goldman’s alternatives business previously provided debt for Permira and Warburg Pincus’ roughly $8.4 billion Clearwater Analytics purchase in December, another financial technology software deal. The pattern suggests lenders differentiating between mission-critical enterprise software serving CFOs and finance teams versus more vulnerable applications facing AI disruption.

3. Bad PIK Climbs to 6.4% as Loan-to-Value Ratios Deteriorate

The share of private equity-backed companies that deferred cash interest payments ticked higher for a third consecutive quarter, with 11% of Q4 borrowers paying interest in-kind per Lincoln International. More than 58% of those loans featured “bad PIK,” deferred interest not elected or available at close but now being utilized.

Bad PIK hit 6.4% of private loans last quarter, up from 6.1% in Q3 and substantially higher than 2.5% in Q4 2021 when Lincoln began tracking the data. The firm analyzed more than 7,000 companies during Q4 as one of the largest providers of third-party loan valuations in private credit.

Companies flagged as having bad PIK went from roughly 40/60 debt-to-equity, which is reasonable, to about 76% debt today according to Ron Kahn, global co-head of valuations at Lincoln. The average loan-to-value ratio for deals with bad PIK has been above 75% since Q4 2024, compared to 47% in Q4 2021.

Why It Matters

Bad PIK rising for three consecutive quarters signals mounting stress as unforeseen decisions to defer cash interest often indicate cash crunches. Issuing bad PIK adds to a company’s debt pile without increasing its value, eroding lender downside protection. Loan-to-value ratios jumping from 47% to above 75% demonstrates equity cushions compressing dramatically. Ares Capital CEO Kort Schnabel told analysts there was “slightly higher percentage of PIK” on the firm’s software book last quarter, but emphasized “99%, maybe even 100%” was structured upfront. The distinction between strategic PIK planned at origination versus bad PIK adopted later becomes critical for assessing portfolio health as software sector faces disruption.

4. Apollo Traded $10 Billion of Investment-Grade Private Loans in 2025

Apollo Global Management traded almost $10 billion of high-grade private loans in 2025 as part of its push to syndicate investment-grade credit on a broader scale. Apollo President Jim Zelter said at a financial conference the asset class will retain its premium “even if there’s a degree of liquidity and transparency.”

Apollo has teamed up with Goldman Sachs and other major Wall Street banks to trade investment-grade debt, syndicating it more broadly and offering real-time pricing. The firm provided loans to large corporations including Sony Music Group and Intel while also syndicating and trading large, high-grade loans.

Zelter drew parallels to the early 1990s when leveraged loans were largely illiquid and banks resisted efforts to trade them. “There was a huge pushback,” Zelter said. “Sound familiar?” That resistance faded over time, and the leveraged loan market grew into a relatively liquid one.

Why It Matters

Apollo’s $10 billion in high-grade private loan trading demonstrates progress building liquidity infrastructure for an asset class designed to avoid exactly that. Zelter’s confidence the premium will persist “even if there’s a degree of liquidity and transparency” challenges the core assumption that opacity drives returns. The 1990s leveraged loan parallel suggests Apollo expects similar evolution toward liquid markets over time. Some peers have pushed back on market-making efforts, contending private credit should remain private. But Apollo’s partnerships with Goldman Sachs and major banks to offer real-time pricing on investment-grade debt creates infrastructure for broader syndication. Success could reshape private credit from illiquid bilateral loans to tradable asset class with observable pricing.

5. Coller and Ares Close $1.3 Billion Credit Secondaries Continuation Fund

Secondaries firm Coller Capital closed a deal to extend the life of an Ares Management private credit portfolio, amassing more than $1.3 billion in total commitments. The transaction transfers a 2018-vintage portfolio of first-lien, floating-rate loans to sponsor-backed middle-market companies into a new continuation vehicle that will continue to be managed by Ares.

The credit secondaries market nearly doubled in 2025, with annual transaction volume reaching $20 billion up from $10.9 billion in 2024 per Evercore. Continuation funds allow investors to roll over investments, becoming an increasingly popular way for buyout firms to avoid selling assets at discounts.

Swedish private equity firm EQT is buying Coller in a $3.2 billion deal to expand its reach into secondaries, expected to close in Q3. Coller previously linked with TPG Twin Brook Capital Partners to establish a $3 billion continuation fund in August. Pantheon sought to raise at least $6 billion across two credit secondaries funds in December, followed by Ares’ debut $7.1 billion private credit secondaries strategy in January.

Why It Matters

Credit secondaries volume doubling from $10.9 billion to $20 billion demonstrates the market becoming essential liquidity mechanism as primary exits stall. Continuation funds transferring 2018-vintage portfolios into new vehicles extend investment timelines without forcing sales at compressed valuations. Edward Goldstein, CIO of Coller Credit Secondaries: “Continuation vehicles are becoming an increasingly important tool, enabling managers to offer LPs liquidity as well as exposure to well-performing assets.” The $1.3 billion Ares deal, Coller’s $3 billion TPG Twin Brook fund, and Pantheon’s $6 billion raise show established managers building permanent secondaries infrastructure. Ares launching $7.1 billion debut strategy after years as primary lender signals recognition that secondaries market provides both liquidity for existing LPs and deployment opportunity for new capital at potentially attractive entry points.

6. Bank of England Considers Third-Party Help for Stress Test Data

The Bank of England is in talks with private markets players about using a third-party firm to gather data for its groundbreaking industry stress test so the project can meet demanding timetables. The exercise will probe how a severe-but-plausible global downturn might impact trillions in unlisted assets occupying rapidly growing space in the global financial ecosystem.

So far 16 alternative asset managers and other financial firms agreed to take part in the System Wide Exploratory Scenario. The group is likely to grow to about 40 in coming weeks as other market participants seek to join. The BoE expects to publish final results in early 2027, with first data submission due March 16.

Some of the largest firms have misgivings about other participants’ ability to supply high-quality data quickly and potential impact on aggregated results. A third party could assist with gathering data from firms who need additional support and help keep the project timeline on track.

Why It Matters

The Bank of England considering third-party assistance for data collection demonstrates the operational complexity of stress testing private markets at scale. Expanding participation from 16 to 40 firms increases breadth but raises data quality concerns as smaller participants may lack sophisticated collection infrastructure. Senior UK lawmakers already expressed concern about how long the central bank set aside to conduct the exercise and pace of subsequent policy response amid mounting fears about mispriced risk and asset bubbles. The March 16 first data submission deadline approaches as some early work takes longer than expected. The stress test represents regulators’ first comprehensive attempt to assess how private markets would respond to severe downturn, making data quality and timeline critical for credibility. Whether third-party involvement maintains rigor while accommodating smaller participants will determine usefulness of aggregated results.

Deals of Note

OneStream - Blue Owl, Goldman Sachs Alternatives, Golub Capital, HPS, Blackstone provide $1.4B ARR loan at S+475 plus $850M revolver and delayed-draw to finance Hg’s $6.4B acquisition with General Atlantic and Tidemark
Structured Credit Partners - Carlyle and Sixth Street BDCs establish CLO equity JV with $600M equity commitments targeting mid-teens returns, Sixth Street Specialty Lending committed $200M, Sixth Street Lending Partners $100M, Carlyle Secured Lending and Carlyle Credit Solutions each $150M
Ares continuation fund - Coller Capital closed $1.3B deal to extend life of 2018-vintage Ares first-lien, floating-rate loan portfolio to middle-market companies

The Reality Check

Bloomberg uncovering at least 250 investments worth more than $9 billion misclassified across major BDCs reveals how classification inconsistencies compound when industry standards diverge. Barclays estimates software comprises 20% of BDC loans. Add another $9 billion potentially hidden in other categories, and actual exposure climbs materially higher just as the sector navigates AI disruption. When investors can’t accurately assess concentration because Pricefx gets labeled “business services” despite mentioning software a dozen times on its homepage, portfolio risk becomes harder to quantify.

Bad PIK climbing from 2.5% to 6.4% over three years while loan-to-value ratios on those deals jump from 47% to above 75% demonstrates equity cushions compressing as companies defer cash payments. The distinction between strategic PIK planned at origination versus bad PIK adopted later becomes critical for portfolio assessment. When 11% of borrowers are paying in-kind and more than 58% features bad PIK not structured upfront, that signals mounting stress rather than strategic capital allocation.

Meanwhile, market infrastructure continues evolving. Apollo trading $10 billion of investment-grade private loans builds liquidity mechanisms the industry historically avoided. Blue Owl leading $1.4 billion for OneStream at 475 bps shows selective deployment continuing into mission-critical software. Credit secondaries doubling to $20 billion provides liquidity as primary exits stall. Whether these adaptations strengthen the system or mask underlying pressure depends on how accurately managers understand true portfolio exposures amid classification problems and deteriorating PIK metrics. The Bank of England stress test expanding to 40 participants by March will provide first comprehensive view of how private markets respond to severe downturns, making data quality critical for assessing system resilience.