JPMorgan Chase and its fellow underwriters are preparing one of the steepest price cuts Wall Street has seen this year as they attempt to offload $5 billion in unsold debt tied to software company Qualtrics. According to people familiar with the matter, the bankers plan to meet with investors this week to place a $2 billion high-yield bond package—debt rated below investment grade, where higher coupons compensate buyers for taking on greater credit risk.

An earlier attempt to sell the Qualtrics loan fell apart after investors grew uneasy about the potential impact of artificial intelligence on software businesses. The original underwriters were forced to retain the debt on their own balance sheets, incurring losses that may exceed $500 million. Commitments left stranded this way are known on Wall Street as hung debt, leaving underwriters to carry both the asset and the risk until the paper can be placed with investors.

Sale Could Be Finalized as Soon as Next Week

The hung debt traces back more than a year, when Qualtrics signed a $6.75 billion agreement to acquire Press Ganey Forsta. An 11-bank syndicate committed $5.3 billion in bridge financing—a short-term facility designed to be replaced by permanent debt such as bonds or leveraged loans once market conditions allow—and has since held preliminary discussions with institutional investors to sell the exposure. Those negotiations stalled in March, however, when a broad selloff dragged down software stocks. The banks have been weighing a renewed sale attempt since then.

Sources previously said the banks planned to market the debt with an 8% interest rate and a discount of roughly 15%. At that level, investors may find greater value in purchasing the existing debt at a discount than participating in a new issuance, which would raise the company's borrowing costs.

The proposed discount underscores the mounting difficulty banks face in placing leveraged debt backed by software companies. Selling bonds below their original price helps underwriters attract investors who might otherwise avoid additional exposure to the sector, but it also leaves the banks exposed to losses on financing they initially committed to provide. For Qualtrics, a successful sale would clear the financing backlog, though costly borrowing terms could add pressure to its balance sheet. The investor meetings this week will also provide an early gauge of whether the unease that derailed the March attempt has eased.

Last month, sources reported that JPMorgan had hoped Qualtrics' third-quarter earnings would help stimulate demand for the deal, despite the company's soft second quarter. Revenue edged down to $718 million in the second quarter from $720 million in the prior quarter, while adjusted EBITDA came in at $332 million.

The company's latest results could also shape investor appetite for the debt sale. Third-quarter revenue was reportedly $711 million, compared with $718 million in the second quarter, suggesting continued pressure on revenue growth as investors assess whether Qualtrics can hold its position in an increasingly competitive software market. Reports put the company's cash generation over the past four quarters at more than $1.1 billion, though that figure warrants independent verification before publication. Bond buyers typically weigh a borrower's cash generation against its debt-service costs when judging how much cushion a discounted offering needs.

Sources currently believe the debt sale could be launched as early as next week.

Software Firms Increasingly Dependent on Debt Financing

Software companies have recently come under strain from elevated interest rates. Lenders' concerns about how AI could disrupt their business models have forced borrowers to accept higher costs and stricter terms in order to secure financing. Firms including Proofpoint and Gainwell Technologies had to substantially improve the terms on offer to complete multi-billion-dollar refinancings.

According to Chris Poggi of Ropes & Gray, the shift largely reflects debt investors being close to fully allocated, as they assess whether they have committed the capital they are willing to deploy for the remainder of the year.

Concerns have been amplified by the circular flow of capital in the AI economy. Major AI companies are investing heavily in smaller firms, which then channel much of that money back to the technology giants to pay for computing power and software. The tightly interconnected nature of these investments has made some investors anxious that the technology market could face a sudden correction, with a failure at one company potentially cascading through the sector.

Those fears are compounded by the fact that many technology giants are funding one another with debt, raising the possibility that a market slowdown could trigger a domino effect. A sharp drop in demand or an economic downturn could ripple across the interconnected software sector, causing widespread stress.

That anxiety was on display recently when Google's parent company saw well over half a trillion dollars erased from its total valuation. Ben Barringer, global head of technology research at Quilter Cheviot, attributed the decline to strategic uncertainty: "The problem for Google is it faces an innovator's dilemma and doesn't know whether to protect its core business or look to join the disruption. As such, Google has lost its edge with Gemini and is behind peers on agentic AI."