Goldman Sachs (GS.N) is actively marketing a derivative product to hedge funds that enables them to take long or short positions on corporate loans, with a particular focus on debt issued by software companies, according to a source familiar with the matter who spoke to the Financial Times.
The instrument — a total return swap (TRS) — allows investors to gain synthetic exposure to the performance of underlying corporate loans without owning them directly. Under a TRS, one party (typically the hedge fund) receives the total economic return of the reference asset (interest payments plus any price appreciation or depreciation), while paying a financing cost (usually based on SOFR or LIBOR plus a spread) to Goldman. The structure can be used to express bullish views (long the loans) or bearish views (short the loans) on credit quality and pricing.
No trades have been executed using this specific strategy to date, the source said.
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Goldman Sachs declined to comment on the specifics of the offering but provided a general statement.
“As a market-maker, we obviously engage constantly with clients on facilitating the trading strategies they want to execute. This happens every day, across many asset classes, in every market environment,” the Wall Street giant said.
The pitch comes at a moment of acute stress in the software sector. Software-as-a-service (SaaS) and legacy enterprise-software companies have seen their stock prices and credit spreads widen significantly in 2026 as investors grow increasingly concerned that rapid advances in generative AI and agentic systems could automate or commoditize many core software functions. AI agents capable of performing complex multi-step tasks across applications — from email management and data analysis to code generation and customer support — are viewed as existential threats to traditional SaaS growth models.
The primary leveraged-loan and high-yield bond markets for software issuers have been effectively frozen. No major debt deals backed by software companies have priced in the primary market since Oracle’s $25 billion debt package closed on February 2, 2026. Secondary-market liquidity has thinned, with loan prices for many software borrowers trading at deep discounts to par amid fears of slower growth, margin compression, and potential rating downgrades.
Goldman’s TRS offering would allow sophisticated investors to express directional views on software-loan performance without needing to source physical paper in a constrained market. A short position via TRS would profit if loan prices fall further (due to credit deterioration or forced selling), while a long position would benefit from any stabilization or recovery in valuations. The product could also serve as a hedging tool for banks and other loan holders looking to mitigate downside risk.
The software sector’s credit and equity weakness is seen as part of a broader re-rating of growth stocks in the AI era. Multiples across enterprise software have compressed sharply since late 2025, with many names trading at single-digit forward EV/Revenue or EV/EBITDA levels — a stark contrast to the 15–30x multiples seen during the 2020–2022 boom.
Investors worry that AI agents could erode subscription-based recurring revenue by offering low-cost or free alternatives to legacy SaaS tools. At the same time, leveraged-loan and high-yield spreads for software issuers have widened considerably. Secondary loan prices for many B-rated software borrowers are now trading in the mid-80s to low-90s, underlining both macro caution (higher rates, slower growth) and sector-specific AI disruption risk.
Goldman’s move to facilitate TRS trading in this space underscores the Street’s view that the software loan market — once seen as a stable, high-conviction asset class — is now a fertile ground for relative-value and directional trades. The bank’s role as a leading arranger and market-maker in leveraged loans gives it unique visibility into pricing dislocations and hedging demand.
While no trades have yet been executed, Goldman’s active pitching suggests growing hedge-fund interest in expressing bearish or hedging views on software credit. If AI disruption fears intensify, or if primary issuance remains sidelined, secondary-market volatility could increase, creating more opportunities for TRS-based strategies.
For software borrowers, the lack of primary-market access raises refinancing risks, particularly for companies with near-term maturities or covenant pressure. But for investors, Goldman’s product offers a way to monetize or hedge those risks without needing to source illiquid physical loans.
The development highlights how quickly market dynamics are shifting in the AI era. What was once considered a defensive, cash-flow-rich sector (enterprise software) is now viewed by some as structurally vulnerable. Goldman’s facilitation of TRS trading on software loans is an early sign that Wall Street is adapting to this new reality — turning credit dislocation into a tradable opportunity while the primary market remains closed.