Remember the SaaS meltdown I flagged two weeks ago? How artificial intelligence was quietly eating into “software as a service” stocks — and how the fallout wouldn’t stay contained?

It hasn’t.

Looking at my screen today, the benchmark iShares Expanded Tech-Software Sector ETF (IGV) is down more than 20% year-to-date. That’s true bear market territory.

Then last week, shares of Business Development Companies (BDCs) — the publicly traded face of private credit — started selling off. A few names tied to the space include Blue Owl (OWL), Ares Capital (ARCC) and Trinity Capital (TRIN).

Very simply put, BDCs are public wrappers around private credit. They raise money from retail investors, then lend to small and mid-sized private businesses.

The appeal for investors is obvious. Fat dividends, often in the high single digits or more, because BDCs must distribute at least 90% of taxable income to shareholders.

For yield-starved investors, that’s catnip.

The risk is just as clear. BDCs lend to companies that banks won’t touch, often using borrowed money to juice returns.When fundamentals deteriorate, losses can pile up quickly.

Here’s the pressure point:

• Technology accounts for about 24% of BDC portfolio exposure, while business services make up around 30%, according to UBS.

That’s more than half of total exposure concentrated in sectors now under real pressure from AI-driven disruption.

It’s worth mentioning many loans were made in 2021 and 2022 when private equity paid peak prices for SaaS companies — and then stacked debt on top. But low rates made the math work. Growth was supposed to cover the rest.

Now growth is slowing. Companies can’t raise prices like they used to. And AI is cutting into profits directly.

But software stress doesn’t exist in a vacuum…

Your Rundown for Friday, February 6, 2026...

Legends of the Fall

It follows two ugly bankruptcies last fall: auto-parts supplier First Brands Group and auto lender Tricolor Holdings.

Both private companies collapsed within weeks of each other in September 2025. Both involved alleged fraud. Both left lenders staring at hundreds of millions in losses.

At the time, JPMorgan CEO Jamie Dimon summed it up best: “When you see one cockroach, there are probably more.”

You’d think markets would be pricing in that risk. They’re not.

Investment-grade spreads recently hit just 0.74 percentage points above Treasuries. Junk bond spreads hover around 2.75 points, near pre-2008 levels. Investors are taking on more risk… and getting paid less for it.

The BDC software crisis has the same fundamental problem as First Brands and Tricolor: loosening credit standards in a yield-starved environment.

Both involve lending large sums to businesses deteriorating faster than anyone expected. Both involve creditors discovering — too late — that their supposed collateral isn’t as valuable as they thought.

Private credit, meanwhile, has exploded from a niche market a decade ago to about $2 trillion today. Worst case scenario this year? UBS estimates default rates could rise to 13% for private credit firms if AI triggers even more disruption.

Which explains why SaaS-saturated BDCs are tanking now.

The next test will come when institutional investors — pension funds, endowments, family offices, etc. — realize private credit isn’t the hedge it promised. It’s just a more opaque, more leveraged, less liquid version of the broader market.

And when the market finally comes to terms with just how much debt is sitting on top of business models that AI is actively undermining, the unwind won’t be pretty.

First Brands and Tricolor were the cockroaches you see. The software crisis might be the nest hidden behind the drywall.

Market Rundown for Friday, February 6, 2026

S&P 500 futures are up 0.50% to 6,885.

Oil’s down 0.15% to $63.20 for a barrel of WTI.

Gold is up 0.85% to $4,930 per ounce.

And Bitcoin’s up almost 6% to $67,270.