Episode summary
A Revolution in Credit Markets
Thoughts on the Market (Morgan Stanley)
· · Hosts: Vishy Tirupattur · Guests: Dan Toscano
Summary
Dan Toscano argued that credit markets have moved from a narrow bank-versus-market framework to a broader continuum spanning public credit, private credit, structured finance, and securitized lending. He traced that evolution from the junk bond and LBO era of 1988 through the rise of syndicated loans, CLOs, and post-crisis private credit, saying leverage lending guidelines helped push activity out of the banking system and into private credit.
He said the recent withdrawal of those leverage lending guidelines should let banks participate across the entire continuum again, while also accelerating the blur between public and private credit. In his view, terms, pricing, and participants are already converging, so the market is becoming less segmented rather than more.
Toscano said the next phase of private credit will be driven by digital infrastructure, especially data centers and power buildouts tied to AI. He expects trillions of dollars of capital needs and warned that 2026 may bring more project delays, cost pressure, and supply-chain friction as 2025 funding commitments mature and credit problems begin to surface.
Key takeaways
- Toscano said leverage lending guidelines capped bank participation and inadvertently fueled the growth of private credit.
- He expects the withdrawal of those guidelines to let banks lend and underwrite across the full credit continuum.
- Toscano thinks private credit 2.0 will be shaped by digital infrastructure, data centers, and power capacity for AI.
- He warned that 2026 may expose problems in projects financed in 2025, including delays, higher costs, and labor shortages.
- Toscano said the capital need for the AI-related buildout is measured in trillions of dollars, not billions.
Notable quotes
“the relaxation of those guidelines or the elimination of those guidelines really frees the banks to participate in the entire continuum”
“the elephant in the room is digital infrastructure”
“This is a scale unlike anything we have ever seen”
“we have neither”
How the episode opens
Welcome to thoughts on the market. I am Vishiatur, Morgusani's chief fixed income strategist. Today is a special edition of our podcast. We are joined by Dan Tuscano, chairman of markets in private equity at Morgusani and a seasoned practitioner of crate markets over many, many crate cycles. We will get his thoughts on the ongoing evolution and revolution in crate markets. It's Wednesday, January 7th at 10:00 a.m. in New York. Dan, welcome.
Glad to be here. — So, to get our the listeners familiar with your journey, can you talk a little bit about your experience in the great markets and how you got to where you are today?
Yeah, sure. So, um I've been doing this a long time. You used the nice word seasoned.
My kids would refer to it as old, but uh I started in this journey in 1988. And to make a long story short, my first job on Wall Street was buying junk bonds in the infancy of the junk bond market when most of what we were financing were LBOs. So if you're familiar with Barbarians at the gate, one of the first bonds we bought were RJR Nabiscoco reset notes.
And I've been doing this ever since. So over almost four decades now. So the junk bond market evolved into high yield market, syndicated loan market, CLLO market, financial crisis.
So talk to us about your experiences during this transition.
Yeah, I mean one of the things these markets do is they finance evolution in industries. So when I think back to the early days of financing, leverage buyouts, they were called bootstrap deals. The first deal I did as an intermediary on Wall Street as opposed to as an investor was a buyout with Bang Capital uh 1993.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- credit markets
- private equity
- ai buildup
- fixed income outlook
- market road ahead
Watch the episode
Watch “A Revolution in Credit Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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