Rubric Capital Warns that AI Could Upend Private Credit in Software Companies

Deutsche Bank joined Rubric Capital and others in highlighting risks for the private credit sector. In the bank’s annual report, according to Reuters, it disclosed that its private credit portfolio rose by about 6% to approach €26 billion this past year. Deutsche Bank also pointed to the failures of certain U.S. sub-prime lenders, saying they have increased scrutiny by investors worried about the risks related to private credit. It also warned about growing concerns regarding underwriting standards and risks associated with fraud.

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Although Deutsche Bank said it isn’t exposed to significant risks, it did warn that it could “face potential indirect credit risks through interconnected portfolios and counterparties.”

Rubric Capital flags concerns

Deutsche Bank’s statements seem to echo those raised by Rubric Capital in its recent letter. In Rubric’s February 18, 2026 investor letter obtained by Hedge Fund Alpha, David Rosen said business development companies (BDCs) warned that 2025 may have been “as good as 2008” because “credit was plentiful.” He noted that the main use for private credit loans has been to fund leveraged buyouts (LBOs) in private equity.

In most cases, those deals are supported by excessively high leverage, meaning there’s not much room for mistakes. Fitch and Lincoln International reported that leverage across the direct loans they’ve been tracking is about 5.3 to 5.9x. Meanwhile, interest coverage ratios stand at about 1.9x.

The worst underwriting standards in decades – at least

Rosen and his team spoke with a manager of a private BDC that they respect, and he warned that the underwriting standards he observed in 2025 were the worst he has seen in his 25 years working in finance. The BDC manager told the Rubric team that leverage peaked at 6.5x EBITDA in previous underwriting cycles. However, leverage spiked sharply in 2025, surpassing 8.5x EBITDA.