Weekly Market Summary

Extra Credit^*

•  With 53% of the Software & Services sector (92 issuers) rated B‑minus or in the CCC category, AI‑driven disruption combined with weakening fundamentals now poses a greater credit risk to the sector than the maturity wall itself. Continued performance deterioration could impair borrowers’ ability to refinance upcoming maturities. If refinancing windows narrow, liability management exercises (LMEs) would likely become the primary restructuring avenue, with traditional bankruptcy remaining a last resort.
• Many companies in the sector were acquired before the Federal Reserve began its rate‑hiking cycle in March 2022, a period marked by elevated valuation multiples and high leverage. Should AI‑related disruption intensify and demand for certain products or services decline, refinancing conditions could become increasingly challenging for affected issuers. This backdrop may also spur further consolidation, as sponsors seek to preserve value through capital infusions or strategic M&A. In a more severe disruption scenario, sector‑wide distress levels could rise materially, with LMEs becoming the preferred tool for addressing financing and restructuring needs
• From a debt outstanding perspective, $130 billion, which represents 52% of the Software and Services sector, is rated B‑minus or in the CCC category. B‑minus credits account for $104.5 billion, and CCC‑rated issuers represent $25.2 billion. As of Feb. 6, 21% of Software and Services loans in the index were trading below 80 amid rising secondary‑market volume and volatility. Among B‑minus issuers, 21% (by count) fall into the below‑80 cohort, while the share increases sharply to 67% for CCC‑rated credits, highlighting materially greater market stress at the lower end of the rating spectrum.

Morningstar as of 2/18/2026.