Under the impact of AI, "iron chains" are linked together, and U.S. leveraged loans have been severely hit, with up to $150 billion CLO securities facing impact

The disruptive potential of artificial intelligence technology is rapidly transmitting to the credit market, triggering a severe adjustment in the U.S. leveraged loan market and posing a systemic threat to the large collateralized loan obligation (CLO) market. As concerns about the damage to traditional business models intensify, the U.S. leveraged loan market has just experienced the most severe monthly sell-off in over three years. Borrowers, particularly those in the software and services sector, are at the forefront, with a significant amount of debt quickly falling into distress. According to a warning from JP Morgan, CLO underlying assets worth up to hundreds of billions of dollars are directly facing the disruption risk brought about by the AI boom. This AI-driven market reassessment has not only raised the risk premiums for related companies but has also sounded the alarm for the credit derivatives market that heavily relies on such assets. Currently, this turmoil has led to a significant contraction in new loan issuance activities in the U.S. Investors are increasingly concerned that, with the peak of debt maturities approaching and potential resets in market expectations, the credit market may face further selling pressure and liquidity challenges. Sell-off Intensifies, Leveraged Loans See Largest Decline in Years The rapid development of artificial intelligence is directly impacting the traditional credit market. According to Bloomberg data, the Bloomberg U.S. Leveraged Loan Index, which tracks the performance of related assets, fell by 1.34% in February, marking the largest monthly decline since September 2022 (when U.S. interest rate hikes raised recession concerns). In this round of sell-off, loans in the software and services industry led the decline. This market anomaly highlights investors' profound concerns about the potential for AI technology to disrupt traditional business models. As a significant amount of debt falls into distress, the refinancing risks for borrowing companies have significantly increased. As a key financing channel for non-investment-grade companies, the U.S. leveraged loan market is under noticeable pressure, with the number of new loan issuances plummeting to the lowest level since May of last year. Risk Spreads, Hundreds of Billions in CLO Assets Face Reassessment The turmoil in the leveraged loan market is spreading to the CLO market through a "domino effect" of structured products. According to estimates from JP Morgan strategists, among the leveraged loans packaged into U.S. CLOs, approximately $40 billion to $150 billion in assets may be subject to disruptive impacts from the AI boom. Previously, Anthropic PBC released the powerful Claude chatbot, which directly triggered a sharp sell-off of software-related loans. Currently, CLO managers are busy sorting through their portfolios to assess which loans are most sensitive to AI impacts. A team of strategists led by Rishad Ahluwalia at JP Morgan noted in a report on Thursday that while concerns about an "AI apocalypse" may be overstated and focusing on the software industry is reasonable, investors should consider the broader impact of AI disruption on overall CLO credit risk. The strategists conducted a preliminary screening of CLO's AI credit risk using market prices and rating information but acknowledged that further refinement is needed in areas like healthcare, which are complex and have proprietary data issues Debt Maturity Wave Approaches, Refinancing Pressure Intensifies At the recent SFVegas 2026 conference, the impact of software on corporate CLOs became a central topic. Attendees expressed concerns not only about the quality of underlying assets but also about the broader sell-off risks that may arise from a weakening labor market or AI anxiety. This concern becomes particularly urgent in the face of the upcoming debt maturity wave. JP Morgan strategists emphasized the refinancing risks associated with loans, noting that approximately $51 billion of software debt rated B- or lower will mature in 2028, with another $50 billion maturing in 2029. Additionally, due to the significant exposure of the private credit market in the software sector, its ability to provide refinancing for syndicated assets is limited, and the previously common "public-to-private" takeover model may be difficult to sustain. Although JP Morgan economists expect the process of AI penetrating the real economy to be relatively gradual, strategists warn that the leveraged speculation in financial markets regarding AI has brought about the risk of an "unpleasant reset," which aligns with their cautious outlook for the CLO market in 2026.