• Down‑trading software credits with permissive documents are very susceptible to value‑shifting LMTs, with certain issuers consistently screening weakest across all three scoring frameworks.
• Covenant review has re-examined 26 names in the software sector trading below 90% of par to evaluate LMT risk in three broad categories, highlighting which of these names are at the highest and lowest risk of an LMT.

Overview

Many software credits are down-trading on slower growth, uneven cash conversion, tighter refinancing windows, and the looming threat of AI. In these situations, documents, not fundamentals, can often decide outcomes, meaning that names with permissive covenants can manufacture liquidity via uptiers, drop-downs, coercive exchanges, or investor-on-investor structures, redistributing value across the stack. LMT activity remains high and continues to evolve notwithstanding headline decisions, making weak documentation a primary leading indicator of where the next transaction may surface.