The Bloomberg US Leveraged Loan Index is suffering its most significant decline since 2022, with average prices dropping 1.34% in February 2026. The sell-off is concentrated in the software sector, which constitutes roughly 12% of the index.
The catalyst is an existential threat from Artificial Intelligence. The percentage of software loans trading above par collapsed from 47% to below 10% in January 2026 alone. Highly leveraged buyout names in the space saw trading prices fall by 7 to 10 points.
Distress is mounting rapidly. Over $17.7 billion in software-related loans sank to distressed levels within four weeks, pushing total tech distressed debt to approximately $46.9 billion. Market indicators show a sharp increase in debt trading below 60 cents on the dollar, signaling expectations of widespread defaults or restructuring. Unlike the 2022 downturn driven by Federal Reserve rate hikes, this collapse is a direct response to sector-specific disruption.