AI fear has been rough on tech stocks. Now it is hitting Wall Street's biggest banks too.
A group of 11 banks led by JPMorgan Chase is staring at more than $500 million in paper losses on a Qualtrics debt deal. No one wanted to buy the loans.
Now the banks are stuck with them.
JPMorgan and 10 other banks agreed last October to lend Qualtrics $5.3 billion. The cash was meant to fund Qualtrics' $6.75 billion buyout of Press Ganey Forsta.
Press Ganey is a healthcare survey firm. The deal would have been one of the biggest software buyouts of the year.
It joined Qualtrics' survey tools with Press Ganey's healthcare bench-marking platform. The plan was to slice the debt and sell it to outside buyers.
The package was split into a $3.3 billion leveraged loan plus $2 billion in junk bonds and private credit. But that sale never happened.
In March, the banks pulled the deal. They had spent months hunting for buyers.
They could not find any at a price they could accept. By then, AI fears had spooked the market. The deal stalled out on March 17.
The reason buyers walked away comes down to one fear. AI is going to gut parts of the software space.
Qualtrics' online survey tools sit right in the line of fire. Some on Wall Street are calling it the Saaspocalypse.
That term is short for software-as-a-service apocalypse. The bet is that any rule-based product an AI agent can copy gets cheap or fades away in the next few years.
That fear used to live in the stock market. Now it has bled into the credit market.
Lenders are quietly raising the bar on software firms. JPMorgan has told its team to take a fresh look at every loan in its books with software exposure.
The goal is to find any other deals that could blow up the same way.
A separate $1.5 billion Qualtrics loan due in 2030 already trades at about 86 cents on the dollar. That kind of price is the kind that is usually saved for troubled firms.
Lenders price loans like that when they think they might not get paid back in full. In February, the same loan traded close to par, which is full face value.
Apply the 86-cent cut across the $5.3 billion package, and the math gets ugly. The bank group is looking at more than half a billion in paper losses.
That is what the loss would be if they sold at today's market price. Holding the debt instead of selling does not fix the problem.
The loans still sit on the books at marked-down values. They eat into the bank's profits each quarter.
Banks may have to hold this debt on their own books. That would make it the year's biggest "hung" deal.
A hung deal is when banks lend the cash but cannot offload the loans to outside buyers. Whoever finally takes the loans will get a steep cut.
