Under the impact of AI, the "chain of iron links" has been severely affected, with US leveraged loans taking a heavy hit. Up to $150 billion in CLO securities face disruption.

The disruptive potential of artificial intelligence technology is rapidly spreading to the credit markets, triggering significant adjustments in the U.S. leveraged loan market and posing systemic threats to the large-scale collateralized loan obligation (CLO) market.

As concerns over traditional business models being undermined intensify, the U.S. leveraged loan market has just experienced its worst single-month sell-off in over three years. Borrowers, primarily software and services companies, are at the forefront, with a large amount of debt quickly falling into distress zones.

According to warnings from JPMorgan, up to hundreds of billions of dollars in underlying CLO assets are directly facing disruption risks brought by the AI boom. This AI-driven market reevaluation has not only increased the risk premiums of related companies but also sounded alarms in the credit derivatives market, which heavily relies on such assets.

Currently, this turmoil has led to a sharp decline in new loan issuance in the U.S. Investors are increasingly worried that, as debt maturities peak and market expectations potentially reset, the credit market could face further sell-offs and liquidity challenges.

Sell-off intensifies, leveraged loans see largest decline in years

The rapid development of AI is directly impacting traditional credit markets. Bloomberg data shows that the Bloomberg US Leveraged Loan Index, which tracks related assets, fell by 1.34% in February, marking the largest single-month decline since September 2022 (when U.S. rate hikes sparked recession fears).

In this round of sell-offs, loans in the software and services sector led the decline. This market movement highlights investors’ deep concerns that AI technology could disrupt traditional business models. As a large amount of debt enters distress zones, 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 new loan issuance dropping to its lowest level since May last year.

Risk spreading, hundreds of billions in CLO assets face revaluation

The turbulence in the leveraged loan market is spreading through structured products like CLOs in a chain-like fashion. According to JPMorgan strategists, an estimated $40 billion to $150 billion of assets in leveraged loans packaged into U.S. CLOs could be affected by the disruptive impact of the AI boom.

Earlier, Anthropic PBC released the powerful Claude chatbot, which directly triggered a sharp sell-off in software-related loans. Currently, CLO managers are busy reviewing their portfolios to assess which loans are most sensitive to AI impacts.

A team of strategists led by Rishad Ahluwalia at JPMorgan stated in a report on Thursday that, while concerns about an “AI doomsday” may be exaggerated and focusing on the software sector is reasonable, investors should consider the broader impact of AI disruption on CLO credit risk. They conducted preliminary screening of CLO AI credit risks using market prices and rating information but also acknowledged that in complex, heavily regulated fields like healthcare, with proprietary data issues, further detailed assessment is needed.

Debt maturity wave approaches, refinancing pressures intensify

At the recent SFVegas 2026 conference, the impact of software on corporate CLOs became a key topic. Attendees expressed concerns not only about the quality of underlying assets but also about broader sell-off risks driven by weakening labor markets or AI-related anxieties.

These concerns are especially urgent with the upcoming wave of debt maturities. JPMorgan strategists emphasized refinancing risks, noting that about $51 billion of software debt rated B- or lower will mature in 2028, with another $50 billion due in 2029. Additionally, given the large exposure of private credit markets to the software sector, their ability to refinance syndicated assets is limited, and the previously common “public-to-private” rollover model may become unsustainable.

Although JPMorgan economists expect the integration of AI into the real economy to be gradual, strategists warn that financial markets’ leverage speculation on AI could lead to an “unpleasant reset,” aligning with their cautious outlook on the 2026 CLO market.

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