Invesco's Ivanova Sees Credit Opportunities in Software

Invesco fund manager Alexandra Ivanova said credit markets still offer opportunities, highlighting software as one of the biggest underperformers but noting that some businesses appear resilient. The commentary is broadly constructive on selective credit exposure, but it is high-level market color rather than a specific tradeable catalyst.

Analysis

The key takeaway is not simply that software credit looks cheap, but that dispersion inside the sector is likely to widen further as refinancing risk becomes the dominant equity-beta driver. The market is starting to separate cash-generative vertical software from “growth-by-borrowing” models; that favors firms with subscription durability, low customer churn, and limited near-term maturity walls, while penalizing companies relying on debt-funded acquisition rollups or heavy SBC with weak free cash flow conversion.

Second-order effects matter more than the headline. As credit stays selective, vendors that sell into CFO-controlled budgets can still underwrite enterprise retention, but lower-quality software names may be forced into discounting, delayed hiring, or asset sales to preserve liquidity. That creates an opportunity for stronger competitors to take share without needing broad end-market growth; the loser is often not the whole industry, but the weakest balance sheets in each subvertical.

The market may be underpricing the lag between rate cuts and actual credit relief. Even if policy eases over the next few quarters, maturities and covenant tests clear over months, not days, so the next catalyst is likely idiosyncratic: a warning on refinancing, a distressed exchange, or a private equity sponsor walking away from support. The contrarian view is that “software underperformance” has already become consensus, but the real mispricing is that investors still treat all software credit as one trade when capital structure quality is now the primary differentiator.

Key Decisions for Investors

• Go long high-quality software credit versus short weaker capital structures: buy CDS or bonds of resilient recurring-revenue names and short/avoid highly levered software borrowers with 2026-2028 maturities. Time horizon: 3-9 months; the edge is in refinancing dispersion, not sector direction.
• Pair trade: long profitable enterprise software equities (quality compounders) vs short highly levered software names with negative FCF and elevated debt/EBITDA. Target a 10-15% relative spread over 2-4 quarters as credit markets keep sorting winners from losers.
• Use downside protection on lower-quality software with upcoming maturities: buy put spreads 3-6 months out on the weakest balance-sheet names rather than outright shorts, since the catalyst is binary and can take time to surface.
• Avoid reaching for yield in software credit until issuance windows normalize; require a wider spread cushion for any new exposure, especially where debt repayment depends on multiple expansion or refinancing rather than current cash generation.