View / Why the private-credit panic is misplaced

If you’re worried about private credit, and a lot of people are, you should be really worried about private equity.

The mounting panic over private credit — with Blue Owl as the market’s current whipping boy — misses a crucial detail: Beneath every troubled loan sit billions in private equity that, due to the way these deals are structured, will be wiped out before lenders lose a dollar.

In a downturn, lenders hold the high ground. They get paid out first. Three-quarters of Blue Owl’s flagship $16 billion loan fund is parked at the absolute top of the capital stack, senior (to the equityholders) and secured (by collateral). Below them are junior creditors with weaker claims on borrowers’ assets. All the way at the bottom are buyout shops holding the “first loss” piece.

If AI-hit software companies can’t pay their debts, that equity will be wiped out and creditors like Blue Owl will recover what they can from the dregs. These are not proud moments for lenders, but they’re the only ones getting any money back.

Consider the market’s current problem child. Thoma Bravo bought Medallia, a software company that runs customer-satisfaction surveys for other big companies, for $6.4 billion in 2021. Now, its lenders have marked down the debt as low as 77 cents on the dollar, an acknowledgment that they’re unlikely to get fully repaid, and are negotiating with the company to restructure, people familiar with the matter said. That would leave Thoma Bravo’s $5 billion of equity in the company close to worthless. (Thoma Bravo declined to comment.)

If AI disruption hits as hard as doomsayers predict, this pattern will repeat across software buyouts. Yet private equity’s exposure remains oddly absent from the panic narrative. Investors are rushing to take their money out of Blackstone’s credit fund, but I don’t see a line of redemptions at the firm’s semi-liquid buyout fund, 9% of which is invested in software.

The SaaSpocalypse may well be overblown. Thoma Bravo’s boss thinks so. So does Uber CEO Dara Khosrowshahi, who has little appetite to replace the enterprise software Uber buys: “It’s easy for me to vibe code a BS to-do app,” he said, displaying his DIY results while recording Semafor’s new Compound Interest podcast (out today!). Big companies “are much more obsessed with getting things right,” he said.

But if disaster does strike and AI guts software revenues, creditors holding the high ground are in far better shape than the equityholders at sea level, who will be swamped.

If President Donald Trump succeeds in pressuring the Federal Reserve to cut interest rates, it may alleviate some of the pressure, Jason Greenberg, co-head of global tech investment banking at Jefferies, tells me. Without that, he said, “you’re going to see a substantial number of private equity wipeouts.”