‘Who’s the Next Winner?’: Diameter Capital’s Scott Goodwin

Episode Summary

Executive Summary: Scott Goodwin describes Diameter Capital’s cross-spectrum credit strategy, arguing that today’s real risk lies in overlooked consumer, housing, GLP-1, and especially pre-GPT software/SaaS leverage. He emphasizes total-return credit investing, deep company research, and relationship-driven execution, while highlighting AI infrastructure winners and future dispersion in software distress and recoveries.

Main Topics: Current credit stress signals (Priority: 5/5): Goodwin says headline credit metrics look stable, but Diameter is focused on hidden stress in U.S. consumers, housing, and sectors affected by GLP-1 adoption. He frames these as areas where surface-level data can miss real leverage and changing demand patterns. Diameter’s credit philosophy and process (Priority: 5/5): The firm invests across the full credit stack with a total-return mindset, preferring forward-looking sector and company analysis over ratings or index exposure. Goodwin compares the approach to equity long/short thinking, emphasizing price, catalysts, and security selection. Twitter/X debt trade as a case study (Priority: 4/5): Goodwin explains how Diameter used alternative data, LP expertise, and bank relationships to underwrite and transact in Twitter/X debt at attractive yields, illustrating how research and execution together create opportunity. AI’s impact on credit markets (Priority: 5/5): He argues AI creates microcycles and winners/losers in credit, especially in telecom fiber, spectrum, data centers, and chip financing. Diameter seeks upper-capital-structure positions where it can understand collateral and cash flow more clearly. Software/SaaS as a looming credit risk (Priority: 5/5): Goodwin sees pre-GPT SaaS LBOs as a vulnerable cohort because AI can slow growth, reduce retention, and impair recoveries. He expects defaults to rise and recoveries to be weak due to poor documentation and limited shortability. Origin story and firm-building relationships (Priority: 3/5): He recounts the long partnership with Jonathan Lewinson from Anchorage, the support from Goldman Sachs leaders, and how trust and transparency helped launch Diameter in 2017 and scale it to a major credit platform. Personal path and sports-led investing mindset (Priority: 3/5): Goodwin traces his investing origin to fantasy baseball, sports statistics, and early mentorship, and closes with his involvement in U.S. soccer and the 2026 World Cup, reflecting his belief in data, competition, and long-term development.

Key Arguments: The most important credit risks today are not obvious in headline default data; they are emerging in consumer leverage, housing weakness, and sector-specific demand shifts like GLP-1 adoption. Private credit and bank-loan markets can hide stress because much of the lending has migrated off bank balance sheets into ABS, insurance, and other structures. Diameter’s edge comes from analyzing credits like an equity investor would: focusing on sector trends, catalysts, and security prices rather than ratings or index membership. Twitter/X debt was attractive because Diameter combined public ad data, LP expertise, and bank relationships to underwrite the earnings inflection before the market fully recognized it. AI will create credit winners and losers: telecom fiber and spectrum are beneficiaries of inference and data transfer, while some software/SaaS businesses face slower growth and weaker retention. Chip financing and data-center-related structures can be compelling, but only if Diameter stays high in the capital structure where collateral value is more understandable. Pre-GPT SaaS LBOs are especially vulnerable because the companies were levered before AI risk was visible, meaning covenants, cash flows, and recovery values may deteriorate quickly. In credit, concentrated exposure to one sector is dangerous; once defaults cluster, portfolio construction matters more than isolated issuer quality. Diameter’s internal collaboration across CLOs, private credit, hedge funds, and drawdown capital helps them learn names early so they can act when dislocations occur.

Data Points: Diameter assets under management: approximately $25 billion - Size of Diameter Capital Partners as described in the introduction Firm founded: 2017 - Year Scott Goodwin and Jonathan Lewinson established Diameter Capital Consumer lending growth: 700% over the past five years - Growth in online consumer lending platforms like Upstart and SoFi Twitter/X debt yield: low teens, about 13% to 14% - Yield on the debt transaction Diameter helped execute Twitter/X purchase price: low 90s - Price range at which debt was transacted Twitter/X loan-to-value: sub-50% LTV - Diameter’s view of the debt’s collateral coverage at the time XAI rumored valuation: around $30 billion - Referenced as a mark-to-market benchmark for assessing Twitter/X debt value Twitter debt value relative to XAI: about 5% to 10% on TV - Goodwin’s estimate of the debt’s value relative to total enterprise value after the XAI merger AI fiber debt entry price: 30 cents on the dollar - Diameter bought unsecured debt in a mid-sized telecom company tied to AI infrastructure AI fiber contract backlog: 10+ billion dollars - Contracts signed by the telecom/fiber company with hyperscalers in 2024 Hyperscaler-guaranteed debt spread: 150 basis points over the underlying debt - Structure described in one investment-grade AI-related transaction Existing bonds spread: 75 to 80 basis points - Spread range on existing bonds in the hyperscaler-related financing New debt spread: 225 basis points - Spread on new debt in the same financing Software/private credit market share: about one-third - Goodwin’s estimate of SaaS LBOs as a share of levered finance private credit SaaS share of syndicated bank loan market: high teens percentage - Estimate of SaaS exposure in the bank loan market Initial Twitter debt coupon range: 10% to 13% - Coupon levels on pieces of debt held by the syndicate banks before Diameter’s transaction Twitter cost cuts under Elon Musk: 75% reduction - Referenced as part of Twitter/X’s operational turnaround Attendance frequency for breakfast meetings: weekly - Goodwin and Lewinson met regularly for breakfast during their Anchorage years World Cup timing: 2026 - Goodwin highlights the U.S.-hosted World Cup as a major upcoming event

Pivotal Quotes: "We really want to approach credit from more of a total return perspective, more of how an equity long-short fund would." — Scott Goodwin: Explaining Diameter’s investment framework and why they do not rely on ratings or indices alone "Chat GPT going to war with the software players?" — Scott Goodwin: Describing his view that AI will pressure software/SaaS companies through a slower-moving but meaningful competitive cycle "I think it's almost criminal portfolio management or portfolio construction." — Scott Goodwin: Warning about excessive concentration in one sector, especially in leveraged credit and private credit portfolios

Implications: Listeners should expect more dispersion in credit markets, with hidden consumer and SaaS stress likely to create opportunities and defaults. AI is reshaping credit underwriting, favoring infrastructure while pressuring legacy software, making deep research and capital-structure discipline more important.