Private Credit 2.0 Fuels Digital Infrastructure Amidst Evolving Lending Guidelines

Key Quotes

"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 Nabisco reset notes. And I've been doing this ever since, so over almost four decades now."

Dan Toscano describes his early career in the nascent junk bond market, highlighting his involvement in financing Leveraged Buyouts (LBOs) and referencing a significant deal like RJR Nabisco. Toscano's experience spans nearly forty years, providing a long-term perspective on the evolution of credit markets.

"And inadvertently, or maybe by plan, really gave rise to the growth in the private credit market. So, when you think about everything that's going on in the world today, including, which I'm sure we'll talk about, the relaxation of the leveraged lending guidelines, it was really fuel for private credit."

Dan Toscano explains how the introduction of leveraged lending guidelines, which imposed limits on borrowing, inadvertently spurred the growth of the private credit market. Toscano suggests that these guidelines, by restricting traditional lending avenues, created an opportunity for private credit to expand and flourish.

"And so what I think the relaxation of those guidelines or the elimination of those guidelines really frees the banks to participate in the entire continuum, either as lenders or as underwriters. And so in addition to the opportunity that gives the banks to really find the best solutions for their clients, I think this will also continue the blurring of distinctions between public market credit and private market credit."

Dan Toscano discusses the impact of the withdrawal of leveraged lending guidelines, stating that it allows banks to engage across the full spectrum of lending and underwriting. Toscano believes this will further merge the lines between public and private credit markets as banks gain more flexibility.

"Well, the elephant in the room is digital infrastructure. Absolutely. When you think about the scale of what is happening, the type of capital that's required for the build out, the structure you need around it, the ability to use elements of structure... To come up with an appropriate risk structure for lending is really where the market is heading."

Dan Toscano identifies digital infrastructure as a primary driver for the evolution of private credit, known as private credit 2.0. Toscano emphasizes the immense capital requirements and the need for sophisticated risk structures to finance this build-out.

"Given all that's going on in the world, this massive capital investment that's going on globally around digital infrastructure, we've never seen this before. And so when I look at the capital raising that has been done in 2025 versus what will be done in 2026, I think one of the differences that we have to be mindful of is nothing's gone wrong while we were raising capital in 2025 because we were very much in the infancy of these build outs."

Dan Toscano expresses concern about the financing of the ongoing digital infrastructure build-out, noting that the current period (2025) has been relatively smooth due to the early stages of these projects. Toscano anticipates that as these developments progress into 2026, problems are likely to emerge.

"I am very fixated in 2026 on the laws of supply and demand. When I think about what's going on right now, we usually have visibility on demand and we usually have some level of visibility on supply. Right now, we have neither. And I say that in a positive way. We don't know how big the demand is in the capital world to fund these projects. We don't know how big that can be."

Dan Toscano highlights the uncertainty surrounding supply and demand in the capital markets for the industrial revolution's financing, particularly for 2026. Toscano notes that the scale of demand for funding these projects is currently unknown and continues to grow, representing a significant area of curiosity.