Robert “Tripp” Sullivan, MidOcean Partners

Welcome to Lender Lens, our series for profiling leaders in the Lender community.

With private credit playing an increasingly important role in the financial system, we wanted to find out how lenders are navigating the evolving landscape and how they assess the market in the coming years.

Dealmaking has become more complex in today’s market — and private credit is adapting.

MidOcean focuses on mid-sized, less-trafficked corners of the credit market. How would you describe that sweet spot to someone outside the industry?

In private credit, we typically focus on tranches of $50-500 million tranches. In public markets, we generally look at capital structures at less than $2 billion. We believe this segment of the market receives less investor attention and offers some of the most attractive opportunities to generate alpha. Reduced competition can result in better economics, stronger documentation and greater downside protection. These opportunities are large enough to matter for MidOcean but are often overlooked by larger firms at which they wouldn’t move the needle. We seek to hold a meaningful position in each investment. This gives us a stronger voice within the lender group and can help protect us if a credit becomes stressed and creditor constituencies seek to improve their relative position.

As a portfolio manager, how do you think about the role an individual investment plays within the broader portfolio?

We typically look to do ~30 positions with individual positions ranging from 2-5% of NAV. We size each position based on our conviction, expected return, downside risk and relationship to the rest of the portfolio. Each position contributes to the portfolio’s potential to outperform while maintaining the optimum balance between alpha generation and concentration risk. We want to strike the perfect balance of diversity and potential for outperformance. Ultimately we seek to balance diversification with meaningful position sizes, ensuring our highest conviction ideas drive performance while no single name can impair the portfolio.

MidOcean’s credit strategy can move between private and liquid credit. How do you decide when to shift that balance?

We view the ability to move between private and liquid opportunities as an important source of flexibility that allows us to adapt to changing market environments. We are constantly evaluating the risk-reward opportunities in the market with our analysts as they bring opportunities to our investment committee. Liquid credit can be particularly attractive during periods of market dislocation, like the COVID-19 pandemic and tariff-driven volatility, as performing credits can temporarily trade at significant discounts as investors prioritize and sell broadly. As markets normalize, we can rotate into private investments offering better risk-adjusted returns. With private opportunities we can craft a tailored solution for the borrower while negotiating stronger protections for our investors. These are typically first-lien and offer higher expected returns, lower loan-to-value (LTV) and tighter covenants than broadly syndicated (BSL) alternatives. In today’s more sanguine environment we see substantially greater value in private opportunities where we believe we can earn mid-teens total return on instruments with approximately 50-60% LTV. 

MidOcean invests across cash-flow lending, asset-based lending, and special situations. Is there a type of deal you actively look for that other lenders tend to pass on?

We tend to find more complex parts of healthcare, selective parts of consumer (gaming project finance and asset-based loans for retailers), and specialized parts of ABF market (equipment finance, GPU finance, home equity investments) to be attractive. We are typically drawn to first-lien, high percentage cash pay of the instrument and in our sweet spot of size ($50-$500 million) in a sector that we know well and with low LTV. Within ABF we are seeking private investments backed by high-quality pools of assets that offer double-digit returns with meaningful downside protection through structure, asset coverage, and covenants. Some recent examples of ABF opportunities include an equipment finance opportunity backing pool of large, earth-moving equipment for a publicly traded equipment rental company, a loan for a hospital system against high-quality government and private payer receivables, a GPU financing for a large neocloud, and a home equity investment program for a leading fintech lender.

Is there a recent deal that captures what MidOcean does differently from a typical lender? What made it work?

We recently led a financing for a small home, health and hospice operator that I think embodies our differentiated approach. We worked with advisors on a complicated ESOP-led transaction that was owned by the founder and looking to recapitalize its balance sheet. We were attracted to it given its low leverage, strong credit documentation and above average spread.

Where are you finding the most interesting opportunities in credit right now?

We are finding more opportunities in private ABF and private capital solutions to be the most appealing. We think the opportunity to earn mid-teens total return with a LTV up to 60% is very appealing. These have tended to be in niche parts of the market such as complex parts of healthcare and asset-backed GPU financings.

What does your Peloton routine actually look like? What keeps you coming back to it?

I try to rotate between running in the warmer months and using the Peloton when it gets darker earlier. Given we have young children, I find it the easiest to use later at night after they go to bed. I’m also a big fan of the Tread+ treadmill.

What’s the best piece of advice you’ve ever received, and do you still follow it?

Protect your reputation. We operate in a repeated game with many of the same investors, management teams and advisors in each situation. People have long memories, particularly of how they were treated and how you acted when an investment became difficult. Credit is a relatively small industry, and how you conduct yourself in one situation will inevitably affect how people approach you in the next.

What’s a lesson you learned early in your career that has stuck with you?

Focus first on downside protection. Understand how the company generates cash, what could impair that cash flow and where you sit in the capital structure if the original thesis does not play out. Treat every investment, especially the difficult ones and the workouts, as an opportunity to improve your pattern recognition. The ones that don’t work out will stay with you and help you make better decisions in the future. Credit investing is ultimately a business in which experience compounds over time. 

What advice would you give to someone starting out in credit today?

Develop a strong network of peers with whom you can regularly compare notes on industry themes, individual credits and market developments. You often learn the most by working through difficult situations collaboratively. Conferences, group management meetings and industry events are valuable opportunities to build those relationships. Don’t hesitate to seek advice from more experienced investors who may have encountered similar situations. Something that takes you days to untangle may be immediately recognizable to someone who has seen it before.

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