Claude Code shook credit. What breaks next?

A major theme of the first half of 2026 was Anthropic’s Claude Code triggering a software sell-off that is still reshaping private credit, BSL and distressed debt. In the latest episode of Cloud 9fin Dan Mika, Anna Russi and Samantha Stokes unpack the first half of the year and what shocks await in the second half.

The team reviews a volatile first half that began with optimism around M&A, Hologic, Electronic Arts and new-money LBO supply, before the software sell-off and Iran war changed the tone. Dan Mika contrasts IG M&A volume with weaker high-yield and leveraged loan activity, while Anna Russi explains how private credit lenders are reassessing software underwriting after Medallia handed keys to lenders. Samantha Stokes discusses distressed credits trading down ahead of 2028 and 2029 maturity walls, with lenders wary of long-dated refis as AI risk remains hard to price.

The episode also covers the limited but sector-specific impact of the Iran war on chemicals, building products and airlines, including Tronox, Cornerstone Building Brands and Spirit Airlines. Looking ahead, the team flags private credit liquidity stress, retail redemptions, portfolio sales at managers including Blue Owl, Apollo, FS KKR and New Mountain, rising secondaries activity, Mudrick’s LME fund and the risk of higher-for-longer SOFR.

Have any feedback for us? Send us a note at [e-mail]. Thanks for listening!

Creators and Guests

Producer

Chase Collum

Head of Podcasts for 9fin Limited

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Dan Mika
Welcome to Cloud 9fin. I'm Dan Mika. I'm a senior leveraged finance reporter here at 9fin. And today I have my friends and my colleagues across the different desks. We have...
Anna Russi
Hi, I'm Anna Russi, private credit reporter at 9fin.
Dan Mika
And making her debut on Cloud 9fin...
Samantha Stokes
Hi, I'm Samantha Stokes, and I'm a distressed reporter.
Dan Mika
So we are almost at the halfway point of 2026. I am, I'm gobsmacked at that. This has felt like the longest six months and the shortest six months, just with the amount of stuff that has been happening in markets lately. So I think it's good for us to, in the leveraged finance world, to just take a step back look at what's happened over the last six months in BSL and high yield, in private credit, in distressed land. And just get a sense of the land. And then we can all break for a little bit for the summer and come back strong for the second half.
So I'll start in the world of BSL and high yield. And we started off very optimistic. I think everyone started off very optimistic about this year that M&A was finally going to come back. And I've made this joke that I felt very much like Lucy had finally put the football on the ground and Linus was finally about to kick it. We had Hologic do very well. We had a lot of just big LBOs, including Electronic Arts. And that seemed to pave the way for doing really well in terms of new money deals for an industry for the buy side who really needed and still needs to put money to work.
And then comes Anthropic dropping Claude Code causing the SaaS-pocolypse. Then comes the Iran war. And we are now at this point where there is a lot of M&A activity happening, but it's mostly in IG. Per JP Morgan statistics, institutional grade M&A volume year to date is about $136bn for IG versus $169bn last year. That's likely going to break a record this year. High yield is about $30bn compared to $46bn in 2025. And leverage loans, just over $80bn versus $128bn last year.
Anna, I'll start with you. How has this past six months been in the world of private credit?
Anna Russi
Oh, wow. It's been definitely not boring. A lot has happened. Obviously you guys, we started very optimistic. Everyone was talking like this is the year things will pick up, et cetera. And we saw some M&A activity picking up, but it seems at least from the private credit side, things are taking longer to close. Timelines are dragging, deals are being reworked, restructured. We have valuations being questioned, lenders being more creative to get things done. Sponsors also being more demanding. And obviously one of the first shocks of the year to getting the way of things finally, or for us to finally see an uptick of M&A and for that to lead deal flow in private credit was the software sell-off.
Until recently, software was one of private credit's favorite sector, obviously, but and many lenders build portfolio heavily weighted toward that sector, but just a few weeks into 2026, that drastically changed as we see continued stress in software names. Medallia last week officially handed the keys to lenders. That was one of the largest private credit restructurings on record. And it was just a big name that everyone followed throughout the year. And definitely one that should reinforce concerns around the sector.
Obviously, software has not disappeared from private credit, but it has changed it in the underwriting bar, definitely been higher we have been hearing in conversations with sources with lenders everyone is saying they either pause software lending altogether or they just became far more selective on those names i'm sure that also resonate with that case and others that we saw also resonate to you then on bsl and then obviously in the distressed world as well, right Sam?
Samantha Stokes
Yeah definitely For us, I feel like we were really off to the races at the beginning of the year with a lot of these same software names that I think both of your desks were also looking at. And I think these were a lot of names that a lot of our sources were telling us these are stressed, but maybe not distressed. So these are a lot of credits that were quoted the 80s, low 90s, and yet they were being treated as maybe a little bit more of a distressed, a little bit more of a distressed asset than they normally would be. I feel like we were collaborating a lot with private credit, a lot with the LevFin desk to get some of these stories out. There were some cases where actually advisors were approaching these companies, but a lot of it, it did just seem like there was a lot of market chatter about which companies that debt was trading down ahead of some maturity rolls, which you have upcoming in 2028, some of them in 2029, a few in 2027.
I think looking forward now that that has seemed to settle down a little bit, I think that's next upcoming is these refis are going to happen. And what that looks like, I think that remains the big question. And I think that's what's next for us. But I think that's been one of the main focuses for us so far. And I think the other thing that we've really been focused on in distress, another macro issue in addition to AI, is oil prices really, really high due to the Iran war, as well as tariffs that have caused some distress in manufacturing, building, packaging products. We've been focused on that area of the market as well.
Dan Mika
On that point about software, what's interesting is that there hasn't been a significant deterioration in earnings, at least from what I've heard in leveraged software. The trade seemed to be Anthropic puts out Claude Code. Let's throw out every software name. Then we started to hear that people were starting to become more selective, right? It's a trying to figure out which names are more likely to get vibe coded out of existence, which ones had moats that would make it not as likely for AI to just replace the business model. Obviously, Medallia had its own problems before Anthropic came along with Claude Code.
But I think what's interesting here is, and you guys can chime in here, on A&Es and extensions, what are you guys hearing in terms of how these are going to be structured? It seems like these are going to be ripe for a lot of 2028 deals, 2029 deals to get a year of extension and the sponsors adding some lender protections, maybe some spread. But it's going to be interesting to see, right? Because this feels like a slow moving situation of when there's going to be significant deterioration in earnings, when there's going to be deterioration in company in levered software performance versus what we were all seeing out of the market in early February.
Samantha Stokes
Yeah, I can jump in first. I think what was really striking about, I think, yeah, what we all experienced in February, March, April, May is when the Anthropic news dropped, a lot of these credits quoted downwards and there was this immediate reaction in the market. And then things seemed to reset a little bit. And by the time that earnings came around a lot of these company leaders alluded to the continued threat of AI. And I think now maybe you're starting to see where certain companies are continuing to face threats. And this is where you're starting to see they're being approached by advisors. Maybe there's a co-op forming, maybe they're further down a refinancing process. And then you're starting to see others where they're maybe doing a little bit better job of embracing AI. And these ones are maybe going to be a little bit more adaptable in the market versus maybe at risk of being cannibalized by AI.
I guess to your point of what we're looking at in terms of refinancing, because we are looking at a 2028 maturity wall, I do think that lenders are looking at that date and potentially saying, I don't know that we want to sign on another five-year extension. We don't know what AI is going to look. We don't know what that's going to look like. I think if any of us were sitting having this conversation in late 2022, early 2023, when ChatGPT was first released, I don't know that any of us would be sitting here thinking that 2026 was going to look like what it looks like.
I think we're at this weird point where it's actually it's pretty impossible to predict the future, obviously. But with any certainty, I think it would be really, really difficult to say we're very, very confident here. Take take these terms five, seven years down the road. I think that what we're hearing is that a lot of lenders, if we're thinking about doing a refi, we want shorter terms. We want to kick the can down the road just a little bit longer. And see how some of these things play out, see if companies can't shore up their own AI capabilities and adapt to the market, see how these broader AI-first companies like Anthropic, the real market movers, see what they're doing with their technology instead of locking in terms that may or may not be favorable in the long run.
Anna Russi
Yeah, no, I agree with Sam. Definitely it's impossible to see all of the software names to not be attractive at all to any lender. And one of the things that we talk about is you do have managers that are more experienced in the sector and they have more capacity to handle that. And they just they have been doing software for longer. They have been more focused on that. And that's different than the other lenders that came after and just jumped into the trend and just because software was viewed as a very good, very easy straightforward asset.
But I think also it's just the questions when lenders are looking at those refis have changed. The questions, the terms and what they are looking from those companies and what those companies can provide to give a lender a security to get that capital in. And I think one of the things is lenders used to look at a software name and just ask how much leverage can we provide to that? And now you're just seeing that either is this business actually still financeable at all? Or just how can we still finance that business?
And obviously the exposure of each manager to this sector also will impact a lot more than how many names they already have and how much exposure they actually want to have in the sector. But I don't think we'll see zero percent or that drop dropping that much. But yeah.
Dan Mika
And so this is a situation that is going to continue to play out over the next couple of years. The other thing that I think has really driven the market, or at least interestingly enough, on my desk, not driven a whole lot of changes in the market is the fact that we are in a war with Iran right now. And there is there was this great quote from from someone I talked to last year when the U.S. First struck Iran and the market did not move at all, saying that you would have thought the U.S. Getting into a shooting war with Iran would have been the red alert button to sell as much as you can. Right. That's the biggest geopolitical risk out there.
But really, for most of the market, at least on BSL side, there's not been a whole lot of movement other than the than in energy in sectors that are directly affected that have second term effects out of that. Chemicals, which continues to get hit hard out of that. And then just a spike of inflation due to energy. I'm stunned to see how little the market has moved.
And I think that really is, as Wu-Tang Clan said, cash rules everything around me. There's just so much cash floating around in the BSL market right now among buysiders that they just need to put cash to work, even if the macro backdrop does not look as, or the geopolitical backdrop, excuse me, doesn't look that strong. Sam, how much has the distress market changed due to the Iran war? Is it the same thing with the par lenders?
Samantha Stokes
Yeah, it's an interesting question. I will say for us, these are some of the names that we have been tracking for a while have continued to deteriorate. A great example would be Tronox commodity chemicals has continued to deteriorate. That's a name that we're watching. Another one, Cornerstone Building Brands, which is building material, building materials, excuse me. That's advisor pitches have been circling for some time now. I don't know that there's a direct causation there due to the war. But I think certainly that having that geopolitical issue in the background has continued to cause some of these things to have distress.
And then in regards to oil prices, which I know is related to all of this, too, I think another one that we've been looking at is airlines. Spirit Airlines comes to mind. And again this is a situation that Spirit has been having problems for a long, long time, as have some of these other airlines. But Spirit had the death knell a month or two ago at this point. It's been a really active...
Dan Mika
Past tense had.
Samantha Stokes
Had. Spirit had its death knell. It's been a really active quarter. But we've certainly continued to see a lot of activity in some of these sectors, how much of that it was explicitly driven by the war versus just helped along by it. I'm not sure. I think we have to see where the chips fall, but it's continuing to be pretty active and distressed.
Anna Russi
Yeah, I think in private credit, it's also not a direct effect. Obviously the volatility in the macro scenario obviously has an impact or some impact in the market. But it's the same we're hearing as what we heard when you had the tariff issue or the tariff policies going around and everyone was just oh, we wait and see how that affects. Obviously, you do have some assets that are impacted by it. Lenders are paying attention, but at least so far, we haven't heard anything on a more direct or immediate impact.
When you do have geopolitical risks increasing, LPs do get more cautious. Fundraising might get slower. Exits get harder and sponsors might delay M&A process, which lines up with a lot of what we are seeing and with a lot of the market sentiment we are hearing. But yeah, nothing too much further than that.
Dan Mika
We are about to embark on on the second half, which, again, feels like it's come up out of nowhere. Anna, what's the biggest thing that you're going to be looking for in the second half?
Anna Russi
Yeah. One of the things I feel like in the past few weeks, we have increased a lot in our coverage in the private credit side. And I think it's it's going to be the big elephant in the room for the second half of the year. It's liquidity issues with private credit. Private credit was built around buy and hold investing, but 2026 became the year everyone started looking for liquidity in a different way or just much more than they used to. And fundraising has slowed as we covered that. Exits have remained difficult. Both managers are increasingly looking for ways to generate liquidity and actively manage portfolios. And they are doing that in not, I think we can say in not a traditional way.
We covered, we have seen a growing number of portfolio sales. Examples of transactions of that type that we covered are the Blue Owl portfolio sale, the Apollo one exploring a portfolio sale, FS KKR also mentioned that. New Mountain is another one. Multiple of those names just exploring that path, which one thing that stands out is those transactions seem to have shifted from occasional portfolio management exercises to a much more common market future and a common tool to just handle liquidity in private credit.
And another thing that links to that, it's the retail focused vehicles experiencing a rise of redemption requests that has been a huge topic for us. And I think we continue to see that in the next few quarters and throughout the year.
And then obviously in the past month or we have been seeing a much higher secondary market activity in private credit and just the development of that market. Private credit secondaries used to we, it's been a couple of years that we have been hearing people that part of the market will also start to have to see more activity, but this 2026 definitely seem to have been the year for that to happen.
We are seeing a lot more transactions of like continuation vehicles, a lot more managers trying to raise those and even a lot more teams being created or people being hired to focus on that part of the market. That will definitely be an interesting trend in the next six months.
Dan Mika
On the point of about retail outflows and the retail private credit funds, do you expect that to keep pace with the amount of headlines and the amount of outflows that have been reported in the first half of the year. I think now if you are in the industry and you're seeing, you're in hearing how Leverage Software is doing, right? It hasn't fallen off a cliff. Definitely not to the level that people thought it would be falling off a week after Claude Code was released. But if you're a retail investor, are you still thinking I gotta get out of here? Or do you think there's going to be less outflows and less of a rush to the door?
Anna Russi
We can't say for sure, but the thing is retail investors have a very different approach from LPs, which are much more used to the structure of private credit funds. Retail investors are much more influenced. I guess we can say they are much more influenced by headlines, macro volatility, and it's normal for them to see headlines as we saw in the beginning of the year with the software sell-off and just panic.
Although we, by the beginning of what we saw the redemption request increases in Q1, we were not sure if that would continue. It definitely seems to be the case for Q2. We have continued to see just private credit funds needing to gate those redemptions And even those redemptions, the gates getting lower and lower. It definitely, I think at least for the next, this last quarter and the next one, it seems to be the case for us to continue to see the retail capital trying to get away of that. So, yeah.
Dan Mika
Sam, what's on your plate for the rest of the year? What are you looking at?
Samantha Stokes
Yeah, well, I'm biased because I tend to cover a lot of these software names. But again, after the SaaS-pocolypse at the beginning of the year, now that we have some space between that and where we are now, I think it's going to be one of that was just noise and some reactionary sell off that's going to rebound. And which of these companies actually are going to continue to fall into distress and really fall into play for our team and have other issues that we can that we can tease out and cover. I think that's going to be a big focus for us within software, there are ed tech, I think, has a lot of specific problems. Legal tech has its own problems as well.
And there are a few other sectors Optimum, Brightspeed or tech adjacent that we're following as well pretty closely. I feel like that sector is going to continue to keep us really busy. Those names are also all facing or many of them are facing 2028 maturities. Our team is tracking a looming maturity wall and there's a lot of money that's going to need to get refinanced over the next couple of years. We're also expecting a lot of restructurings.
Mudrick is launching a new LME fund, which is pretty novel. And that tells us that investors are anticipating having to do more restructurings as well. I'm curious to know if that's going to mean an uptick in in-court restructurings as well and what that means for our bankruptcy team. Some of it's interesting and it'll be curious to see what moves on to our desk.
But I don't know. I'd be curious if we talk at the end of the year. I feel like maybe half of the things we say won't come to pass. And it'll be some other random thing that comes out of nowhere in another month and a half that that ends up driving a lot of the work that we end up doing for the remainder of the year, which always makes it fun.
Dan Mika
Well, that's the fun thing is we were not thinking about software falling off a cliff at the start of this year. We were not thinking about...
Samantha Stokes
Probably the opposite, quite honestly.
Dan Mika
Oh, yeah, for sure. Right? Software was doing just fine and was just such a large part of the private credit world and a fairly large part of the BSL world until it wasn't. I think the last thing for me that I'm paying attention to more on the macro side is the rate of the Fed rate, because now we came into this year thinking everything was set for a 25 to 50 basis point cut that would hopefully shake out some names that could be sold, that could allow for some exits, that could allow for some more M&A activity. And now that's pretty much reversed, not just due to inflation rising because of energy, although that certainly isn't helpful.
But yeah, I'm really wondering if we're gonna see rates at least this high for longer, if not higher, in case there's inflation that sticks around based on when the straightforward moves becomes normal again. And I'm not even bothering to timestamp this because who knows. But I think it's gonna be interesting to see what happens if there's just extra, if SOFR goes a little higher, if we start to see a little more pressure on the names that are already distressed and we have to pay an extra 25bps or 50bps or however higher we would go to maintain that. And especially in 2028, how some of these names that were underwritten with very high leverage and just assuming a very low forward curve in the Fed path, how that deals in a world where just money is going to be more expensive for longer and what that means for M&A.
So with that, Anna, Sam, thank you so much for being here.
Samantha Stokes
Thanks for having us.
Anna Russi
Yeah, thank you, Dan.
Dan Mika
This has been Cloud 9fin. I'm Dan Mika. If you have any questions or commentary, you can email us at [e-mail]. We'll talk to you very soon. Thanks for listening.