A year ago, private credit firms were tripping over each other to lend to software companies. This week, a $2.5 billion Sophos deal sat on the table and most of them walked away.
This is what AI displacement risk looks like in the credit markets.
Sophos, the cybersecurity firm owned by Thoma Bravo, is trying to refinance a $2.5 billion first-lien term loan maturing in March 2027. It also has a $92.5 million revolving credit facility coming due in December 2026.
The pitch to private credit lenders included a meaningful step-up in yield - the kind of premium that usually gets deals done. It didn't this time.
Lenders are increasingly nervous that AI tools could eat into demand for traditional software companies. Sophos sells endpoint security to businesses - exactly the kind of software where AI replacement risk has spooked debt investors.
Moody's already cut the company's credit rating from B2 to B3 in March, flagging the looming debt maturities and weakening operational performance.
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With private credit cold on the deal, Thoma Bravo has tapped Goldman Sachs to run a parallel process. The goal is to extend maturities with current lenders through a syndicated loan amendment instead of refinancing into new debt.
In plain English, keep the existing lenders and pay them to wait longer.
Sophos is reportedly eyeing a $2.6 billion syndicated loan amendment to push out the runway. That's less elegant than a clean refinancing, but it gets the maturity problem off the desk before the 2027 wall.
This isn't just about Sophos. It's about how private credit prices in AI risk across the entire software lending market.
Borrowers like Sophos have been the bread and butter of private credit funds for a decade - steady cash flows, recurring revenue, predictable margins. If those names start trading at a discount because lenders can't get comfortable with the AI question, the impact reaches well beyond one cybersecurity company.
Thoma Bravo runs one of the largest software-focused private equity portfolios in the world, so a souring private credit market for AI-exposed software is a headache that gets bigger from here, not smaller.
The next refi to test the market will tell you a lot more than this one did.
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