By Angela Christy M, Rajveer Pardesi and Saeed Azhar
March 11 (Reuters) – JPMorgan Chase has reduced the value of some loans to private credit funds after reviewing the impact of market turmoil around software companies, two people familiar with the situation said.
 The move comes as investor worries mount for the $2 trillion industry over deteriorating credit quality and the threat artificial intelligence is posing to the business models of software companies.
The Financial Times, which first reported the news on Wednesday, said the markdowns apply to loans made to software companies.
These are loans that JPMorgan provides to private funds, who then in turn use the money and leverage to go buy middle market loans, one of the sources said.
The bank’s credit agreements for private credit space allows them to re-mark valuations based on the collateral of the fund if there is a market dislocation, the source said, adding the marks are not significant.
The bank went through its financing portfolio – name by name and then sector by sector – and put different marks on loans such as those with underlying software exposure, the source said.
Private credit has been marred by concerns about deteriorating credit quality and exposure to the software sector – an industry seen as ripe for disruption by advances in artificial intelligence.Â
The re-marking of loans does not happen often, but this isn’t the first time the bank has re-marked loans, the first source told Reuters. The source added that re-marking was “important to do when markets warrant it rather than waiting for a crisis to come along.”
JPMorgan’s shares were down about 0.8% in late morning trading.
Shares of private-credit firms were also down. Ares declined 4.5%, while Blue Owl, KKR, and Carlyle fell about 2.6%.
INVESTOR WITHDRAWALS
Private credit refers to loans issued by non-bank lenders, typically to riskier borrowers or companies funding large buyouts.
While these loans can be arranged quickly and serve borrowers too risky for banks, rising concerns over credit quality and exposure to software firms vulnerable to AI disruption are clouding the fast-growing market.
The industry has seen a wave of investor withdrawals this year on fears of potential defaults by software companies.
Last week, BlackRock said it limited withdrawals from a flagship debt fund after a surge in redemption requests, while Blackstone disclosed that its private credit fund, known as BCRED, faced a surge in withdrawals in the first quarter.
Private credit has also been hit by questions over valuation and transparency, with concerns about Blue Owl replacing client redemptions with promised payouts, and the exposures of some players last year to the bankruptcies of a U.S. auto parts supplier and a subprime auto lender.
JPMorgan CEO Jamie Dimon told investors at the bank’s leveraged finance conference last week that it was being more prudent in lending against software assets, the Financial Times added, citing two sources.
(Reporting by Rajveer Singh Pardesi in Bengaluru and Saeed Azhar in New York; Additional reporting by Utkarsh Shetti; Editing by Rashmi Aich, Saumyadeb Chakrabarty, Megan Davies and Nick Zieminski)
