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The AI premium? The question of whether investors have reached an AI saturation point has become even more pointed. CoreWeave, which last week launched in the US leveraged loan market a $2.6 billion term loan backing the acquisition and installation of specialty processing chips, this week had to substantially hike the deal’s credit spread and yield to bring it across the syndication finish line. It did so amid broader investor hesitancy about AI, concern regarding a potential bubble in the space, and expectations by credit investors for juicier spreads ahead of what’s anticipated to be a continued parade of borrowers in the segment. For CoreWeave, that meant increasing the borrowing spread on the term loan, rated Ba2/BB+ by Moody’s and Fitch, by some 100 bps (to 550 bps), and deepening the new-issue discount on offer, bringing the credit’s yield to a hefty 10.44%, from 8.53-8.79% at initial launch. Further reflecting investor concern, CoreWeave made documentation changes favoring investors. What this means for AI/infrastructure financing remains to be seen, though investors say the segment is now under an even brighter spotlight, considering the borrower’s oversized presence in the industry.

Dividends over deals (cont’d) … As for the market in general, it was a relatively busy week, with some $13 billion in new issues emerging, including LBOs backing Senior Aeroflow Technologies ($850 million/Tinicum and Blackstone) and Dresser Utility Solutions ($640 million/Blackstone Energy Transition Partners). Credits backing dividends to PE sponsors continue to emerge, with some $5 billion in this segment just this week, including two deals of particular note:

• Morton Salt completed a $3.2 billion credit after increasing the deal by $200 million during syndication. Some $1.2 billion in proceeds from the B/B3 rated transaction backs a distribution to shareholders. Stone Canyon Partners is the PE sponsor.
• Arcis Golf, which owns golf clubs across the US, completed an $865 million recapitalization loan, $200 million of which funds a distribution to shareholders. Atairos Group and Fortress Investment Group are sponsors.

As PitchBook LCD’s Jon Hemingway details, these deals are part of the latest surge in dividend activity that has brought loan issuance for this purpose to more than $9 billion in July, the busiest such month since September 2025, and nearly matching such activity during the prior five months combined. From a sponsor perspective, these deals are a poor substitute for actual M&A, which can entail lucrative fees and provide a much-needed exit for existing investors. Indeed, the $5.7 billion in LBO/M&A loan issuance in July is the second-lightest monthly total this year, well short of the May and June totals.

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Nothing to see here … Despite growing concern about the scale of AI buildup and persistent worry about the software segment, actual stress indicators in the market remain largely benign. The private credit default rate, as determined by Proskauer, declined to 2.51% in Q2, from 2.73% in the first three months of the year. “The slight decline in the overall default rate this quarter reinforces the resilience of the private credit market despite continued economic uncertainty,” Proskauer says. “In the software and technology sector, default rates remained stable despite ongoing market attention.”

Silver linings … These ho-hum numbers come amid a new-issue market that is likewise unspectacular, excepting the occasional jumbo deal. Ares Capital Corp., the largest publicly traded BDC, reported $2.6 billion in gross commitments for Q2, down noticeably from an already-depressed $3.2 billion in the first quarter. Of note: Three-quarters of transactions closed by ARCC over the past three months entailed incumbent borrowers, illustrating just how challenging it can be to book ‘new’ business in today’s private credit space. But there were reasons for optimism. Ares said that its pipeline had dramatically improved by the end of the quarter, with June marking one of the most active months for reviewing transactions in the past two years. The lender also touted improved terms for deals in the upper-middle market, where retail’s retreat from private credit has reduced competition.

Glass half-full … of distress. The US economy continues apace, with equity markets testing records and leveraged loan default rates stubbornly benign. So why are distressed debt investors optimistic? The broadest reason is that, five years into a higher-for-longer rate environment, companies that haven’t yet refinanced debt must continue to spend dollars on interest expenses, instead of growth, potentially putting them in a precarious position. In his H2 2026 Distressed Debt Outlook, PitchBook LCD’s Jack Hersch talks to a host of distressed players about where they see opportunities and pitfalls going forward, with emphasis on private credit, the housing sector and, of course, software.

Equity insult to injury … Last week’s Credit Pitch detailed how the ever-dwindling arb — the gap between what a CLO earns on its loans and what it pays its own investors — was denting returns for CLO equity investors, and issuance in the sector more broadly. Emerging this week is more detail on the challenge those investors face: BofA Securities’ preliminary read of Q3 trustee reports across roughly 1,700 deals estimates that US CLO equity returned -8.3% through June, with net asset value down about 13 points year-to-date. One main CLO headwind: the wave of loan repricings that has steadily eroded the spread CLOs earn on their collateral. What’s more, a July ruling in the long-running Serta Simmons restructuring ordered liability-management participants — including named CLOs holding $551 million of the original $1.9 billion loan — to pay $261 million, plus 9% interest to lenders excluded from Serta’s 2020 uptier transaction. Critically, more than half the named CLOs have since liquidated, leaving surviving deals to absorb the award through manager contributions, admin expense, or a reset, leaving equity investors holding the bag.

Sour patch ... A slow July for the high-yield bond market ended with a whimper, as $3.2 billion of weekly issuance capped the lightest monthly sum ($18.2 billion) since last October. Average spreads and yields on new issues, which included a flurry of debt deals backing payouts to dividend-hungry sponsors, hit high marks for any month since April 2024.

Secondary slides ... Conditions remained choppy in the high-yield trading markets, as well. As Treasury yields spiked, the average bid for LCD’s flow-name bond sample dropped 20 bps, to 93.03, its lowest level since November 2025. Among the decliners were bonds backing Tronox, which has seen wartime supply disruptions, and CoreWeave, as investors pushed back on terms of the hyperscaler’s proposed $2.6 billion term loan.

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Data center deluge ... A $12.5 billion-plus, amortizing 2048 bond for BlackRock-sponsored Sopaipilla Investor LLC (backing a Meta-aligned megacenter in Texas) and a $3 billion deal for Equinix (a data center REIT) led a roughly $28 billion weekly output to cap $137 billion of high-grade issuance in July, a record for the month. It’s all been a bit much for investors to digest. While Sopaipilla bonds performed well in early trading, pricing concessions were made to investors to get that deal through. Meanwhile, Meta 6.30% 2056 bonds hit their widest trading levels yet, trading at T+175-180 Thursday morning (yielding about 7%, on dollar prices near 91% of par) from T+140 a month ago and T+120 on June 1.

Short circuit … European private credit manager Hayfin has yet to complete a software investment from its €15 billion flagship direct lending fund, with the firm citing advances in AI that have fundamentally changed how it assesses these businesses. “Overall software exposure within Hayfin’s portfolio has been limited to less than 6% across its vintages,” revealed Marc Chowrimootoo, portfolio manager and co-head of direct lending at the firm, in an interview with LCD’s Nishant Sharma. “We continually assess opportunities, including software, as they arise — it’s just that the framework and the lens through which we look at these is more structured.”

Carpe diem … Sponsored European loan issuance picked up to €21.2 billion in the second quarter as borrowers seized on favorable pricing terms to refinance deals. Average spreads on sponsored transactions fell to 337 bps by the end of June, according to LCD, the lowest since the GFC.