A $300 Billion ‘Debt Wall’ Is Looming Over Private-Equity Backed Companies
Software firms account for about a third of the risky corporate loans due in 2028 and 2029
- Private-equity firms are racing to negotiate loan extensions on much of a $300 billion wall of debt coming due starting in 2028.
- Software companies account for about one-third of the risky corporate loans scheduled to mature in 2028 and 2029.
- About one-quarter of the loans due in 2028 and 2029 have junk ratings of CCC-plus or below, according to PitchBook data.
Private-equity firms are scrambling to avoid big losses from a potential wave of defaults by the companies they own.
Fund managers are racing to negotiate loan extensions on much of a $300 billion wall of debt that is coming due starting in 2028. It is a pressing need that is intensifying because rising interest rates have made refinancing more expensive this year. And much of it is for software companies at risk of being eclipsed by artificial-intelligence companies such as Anthropic, which launched a giant IPO Monday.
Buyout fund managers that fail to get loan extensions risk having the companies they own taken over by creditors and their investments wiped out.
“There are going to be businesses that get the keys tossed back to the bank and don’t make it,” said Hugh MacArthur, chairman of Bain & Co.’s global private-equity practice.
Most companies refinance large obligations 18 to 24 months in advance as a precaution, whittling down the amount of debt coming due in that time frame. Companies owned by private equity have found that harder to do, creating an unusually high “maturity wall” in coming years.
About $140 billion in risky corporate loans are scheduled to mature in 2028 and another $160 billion in 2029. By comparison, from 2023 to 2025, there was an average of about $60 billion due in two years, according to data from PitchBook.
Software companies account for about one-third of the loans coming due in 2028 and 2029, in large part because private-equity funds binged on buyouts of the technology companies over the past decade. Private-credit firms that made many of the loans are also under pressure from default risk.
Private-equity firms built the foundations of the debt wall in 2021, when low interest rates during the pandemic fueled a record year for megadeals like the $11.8 billion takeover of cybersecurity company McAfee. Much of the money the firms borrowed for their buyouts came in the form of seven-year loans, since fund managers typically aim to flip their purchases in that time frame.
That calculus hit a snag after the Federal Reserve started hiking rates in 2022, then grew even tougher this year as Treasury bond yields skyrocketed. When borrowing costs rise, it becomes harder for the firms to profitably sell their companies. The longer the companies go unsold, the more urgent it becomes to refinance their debt. But higher rates can make new loans prohibitively expensive, especially for the weakest companies.
About one quarter of loans still due in 2028 and 2029 have junk ratings of CCC-plus or below, one of the lowest rungs of the ratings ladder, according to data from PitchBook.
“The difference this time versus what we’ve seen for the past 15 years is that interest rates are higher,” said Mark Jenkins, head of global credit at Carlyle Group. “You had an incredible market to refinance in, but we don’t anymore and there’s nothing in my mind that says rates are going down for the foreseeable future.”
Solera, a maker of software for vehicle maintenance, has about $8 billion in loans coming due in 2028 and 2029. Vista Equity Partners, which acquired the company in 2016, had planned an initial public offering in 2024 that would have repaid or extinguished the debt, but the deal failed to launch.
S&P Global Ratings last year downgraded Solera loans to CCC-plus, citing weak earnings and a heavy debt load. If the company were to default, it isn’t just Vista that would take a hit.
A broad mix of investors owned Solera’s debt, including private-credit players such as Apollo Global Management and Ares Management and mutual-fund titans like Fidelity Investments and Pimco. Prices of the loans plunged at the start of the year, then rebounded, but they still trade at discounts ranging from 93 to 77 cents on the dollar, according to data from Solve, reflecting uncertainty about how they will be repaid.
Bank of America said in a report Friday that near-term maturity walls have risen sharply to the highest levels since 2013. It forecasts that the default rate for below-investment-grade corporate loans will double next year to 4% and that creditors will recover less on those bad loans.
Private-equity firms typically expect some of their investments to flop. But if defaults exceed expectations, that will weigh down performance that has already been in decline for years, slashing returns paid out to investors like pensions, insurers and wealthy individuals.
Returns for private-equity funds have dropped below 10% in recent years from around 15% when interest rates were nearly zero, PitchBook data show.
“Private-equity firms are going to need to reposition their companies’ balance sheets and make often very tough calls on what they want to do with those companies,” said Alexander Edlich, a senior leader in McKinsey’s private-capital practice.
To stave off creditors, some firms are using cash from new funds to invest in ailing companies as a sweetener to extend due dates on loans.
Late last year, Clearlake tried to refinance $2.2 billion in loans coming due in December 2027 and 2028 for symplr, a healthcare software company it bought in 2018. The largest loan holders, including Ares Management and Sixth Street Partners, balked. Some had marked the loans down to about 66 cents on the dollar, and they demanded Clearlake increase its investment in symplr first.
Clearlake, which had just raised a $15 billion fund, gave the company $175 million in exchange for preferred shares. Lenders extended due dates for the debt to 2030 and 2031, made an additional loan of roughly $100 million and agreed that symplr could defer some interest payments.
The compromise ensures Clearlake’s control for a few more years and allows lenders to increase their valuations of symplr’s loan.
