Meridian Credit Partners, Fund II is a US private-credit fund making senior secured, first-lien loans to profitable lower-middle-market companies with $5–25M of EBITDA. The strategy pays current income now and protects capital first, in a floating-rate instrument.
The fund targets $350M with a $450M hard cap, structured as a Delaware LP with a parallel Cayman feeder for offshore and tax-exempt investors. The GP commits 2% ($7M). First close is planned for Q4 2026. Terms are a 1.5% management fee on invested capital, 12.5% carried interest, a 7% preferred return, and a European whole-fund waterfall with a 100% GP catch-up. Distributions are quarterly.
Base-case targets are a 11.5% net IRR and a 1.55x net MOIC, with a current cash yield near 9% paid quarterly. Roughly 90% of the book is first-lien at an average 40% loan-to-value, floating at a weighted SOFR + 575. Fund I, a 2019 vintage, deployed $210M across 24 loans with zero realized losses, a 1.6x gross MOIC on realized positions, and a 10.8% net IRR to date.
The opportunity is straightforward. Banks have retreated from lending to sub-$25M EBITDA businesses, leaving a large, under-competed market to disciplined non-bank lenders who can source directly, underwrite conservatively, and hold real covenants.
Three forces have combined to make first-lien lower-middle-market credit the best-paid, best-protected income available in private markets today.
Banks have left. Post-crisis capital rules and two decades of consolidation pushed banks out of cash-flow lending to businesses below roughly $25M of EBITDA. The natural lender to this market has withdrawn, and non-bank direct lenders now fund it. That is not a temporary dislocation. It is a structural handover.
Rates repriced income. Floating-rate senior loans in this band now pay all-in yields near 11–12%, with the spread set over SOFR. An investor earns an equity-like current yield from an instrument that sits first in line on the assets, with no duration bet. Income and protection in the same security is rare, and it is available now.
The band is under-competed. The crowded capital chases $50M-plus deals, competing away spread and giving up covenants. In the $5–25M band there are fewer lenders per deal, which means tighter documents, real maintenance covenants, and genuine lender control. The reward for discipline is structurally higher here than one tier up.
The target is profitable US businesses with $5–25M of EBITDA, a universe of more than 200,000 companies that are too large to be venture and too small to be well served by banks or large-cap credit funds.
Meridian lends first-lien, senior secured, across five defensive sectors: business and industrial services, healthcare services, specialty distribution, niche manufacturing, and logistics. These are cash-generative, non-cyclical businesses with hard assets or contracted revenue. The fund avoids early-stage, commodity, and single-technology risk entirely.
Both sponsor-backed and non-sponsor borrowers qualify. Sponsor deals bring diligence and an equity cushion; non-sponsor deals, sourced through the partners' direct networks, carry the widest spreads and least competition. Loans are floating-rate over SOFR, roughly 90% first-lien, at an average 40% loan-to-value.
Hold sizes run $8–15M across 25–35 borrowers, so the fund is diversified by construction. No single credit is designed to exceed about 5% of the fund, which means the portfolio, not any one loan, drives the outcome.
The strategy is simple to state and hard to execute: get paid a current yield to hold senior secured risk, and sit first in line if the credit goes wrong.
Five principles govern every loan. Income first: each credit is underwritten to a current cash yield, and the fund distributes quarterly from the first quarter of the investment period. Senior and secured: first-lien at roughly 40% loan-to-value with maintenance covenants. Floating rate: spreads over SOFR so income rises with rates, with no duration bet. Diversified by design: 25–35 loans, none above about 5% of the fund. Own the downside: every deal is modeled to a stress case and a recovery before it funds.
Portfolio construction targets roughly 90% first-lien, a weighted spread of SOFR + 575, and a current yield near 9%. Sector weights are capped so no single end-market dominates, and the harvest period lets realized loans recycle into new originations while the fund winds down in an orderly way.
Returns in direct lending are made at origination. Meridian runs three sourcing channels that feed one disciplined funnel, and selectivity is the product.
The direct channel reaches non-sponsor owners and management teams through the partners' eighteen-to-twenty-year networks; these carry the widest spreads and the least competition. Sponsor coverage serves lower-middle-market private equity firms who need a fast, reliable first-lien partner across their portfolio. The intermediary network of boutique advisors, bank cast-offs, and club deals surfaces flow the crowded upper market never sees.
Discipline shows in the funnel. Roughly 540 opportunities are screened each year, about 110 reach the Investment Committee, and only 18–24 close. That is a close rate near 4%. Saying no to 96% of what crosses the desk is the single largest driver of Fund I's zero-loss record, and it is a habit, not a slogan.
Every loan passes five gates and a unanimous Investment Committee vote. Nothing funds on one partner's conviction.
Screen. Fit to mandate on size, sector, sponsorship, and first-lien collateral removes about 80% of what is seen. Diligence. A quality-of-earnings review, customer and cohort analysis, management assessment, and a hard look at the downside drivers. Structure. Leverage, covenants, call protection, and the security package are set, and the credit is modeled to both a stress case and a recovery. IC vote. A written memo goes to the three-partner Investment Committee; approval must be unanimous. Close and monitor. After funding, covenants and cash are tracked quarterly, and the workouts partner owns any position that drifts.
The discipline is deliberately conservative. Meridian underwrites to what it recovers if it is wrong, not only to what it earns if it is right. That is why the strategy has never taken a realized loss across a full rate cycle.
Capital protection is engineered into every position before yield is considered. Four layers stand between an LP's capital and a loss.
Seniority. Roughly 90% of the book is first-lien, first in line on the assets and cash flows of the business. Attachment. An average 40% loan-to-value means the enterprise can lose more than half its value before Meridian's principal is impaired. Covenants. Financial maintenance covenants give the fund a seat at the table early, while a problem is still fixable rather than terminal. Diversification. With no borrower above about 5% and five defensive sectors, a single default is a rounding error, not a crisis.
When a credit does drift, a dedicated partner with twenty years in restructuring runs the workout from day one. The fund does not learn recovery on the way down. Base-case modeling assumes a roughly 3% cumulative loss rate; even at double that, first-lien recoveries and current income hold the fund at a 7.5% net IRR and a 1.32x MOIC. The downside is a lower return, not lost capital.
The competition is defined more by who is absent than by who is present. The lower middle market is the least crowded lane in private credit.
| Lender type | Target size | In our band? |
|---|---|---|
| Large-cap direct / public BDCs | $50M+ EBITDA | Rarely |
| Bank cash-flow lending | Low leverage | Exited |
| Regional banks / SBIC | Small, local | Constrained |
| Meridian Credit Partners | $5–25M EBITDA | The lane |
Large-cap direct lenders and public BDCs need to write $50M-plus checks to move the needle, so they compete for the same crowded upper-market deals with tighter spreads and covenant-lite documents. Banks have exited cash-flow lending at this size. Regional banks and SBIC lenders are relationship-driven and capital-constrained.
Meridian's durable advantage is a sourcing network that produces proprietary flow, an underwriting discipline that turns most of it away, lender-friendly documentation the upper market has given up, a real workout desk, and a reputation for certainty of close. None of these is easily replicated, and together they compound.
Returns are income-led and resilient. The base case targets a 11.5% net IRR and a 1.55x net MOIC, and even a stressed case protects capital.
| Case | Net IRR | Net MOIC | Loss rate |
|---|---|---|---|
| Downside | 7.5% | 1.32x | ~6% |
| Base | 11.5% | 1.55x | ~3% |
| Upside | 14.0% | 1.70x | ~1% |
The gross-to-net bridge in the base case runs from a roughly 15.0% gross IRR, less about 1.4% of management fee, 1.6% of carried interest, and 0.5% of fund expenses, to the 11.5% net figure. Because the fund earns a current cash yield near 9%, the J-curve is shallow: first distributions land within about two quarters of first close, and DPI crosses 1.0x around year four to five.
Returns are driven by income, not by exit timing or multiple expansion, which is what makes them durable across scenarios. The interactive LP Calc lets an investor size a commitment and flex the case and the default rate directly.
The strategy carries real risks. Each is understood, priced, and mitigated rather than ignored.
Credit and default risk. Borrowers can underperform. Mitigated by first-lien seniority, a 40% average loan-to-value, maintenance covenants, diversification below 5% per name, and a dedicated workout desk. Rate and macro risk. A recession raises defaults. Floating-rate income rises with rates, and the book is concentrated in defensive, non-cyclical sectors. Liquidity risk. Private loans are illiquid. The six-year term with a three-year harvest is matched to the assets, and quarterly income reduces reliance on exits.
Deployment and J-curve risk. Capital must be put to work at the right price. A ~4% close rate and a broad funnel let the fund stay selective rather than force deployment. Key-person risk. The strategy depends on the partners. It is mitigated by a shared IC process, a documented underwriting playbook, and an analyst bench. This is a summary; the full risk factors appear in the PPM.
Terms are structured for alignment: the GP earns carry only after LPs receive their capital plus a preferred return.
| Term | Fund II |
|---|---|
| Target / Hard cap | $350M / $450M |
| Structure | Delaware LP + Cayman feeder |
| Term | 6 yrs (3 invest + 3 harvest), 2×1 ext. |
| Management fee | 1.5% on invested capital |
| Carry / Preferred | 12.5% / 7% |
| Waterfall / Catch-up | European whole-fund / 100% |
| GP commit / First close | 2% ($7M) / Q4 2026 |
The fee is charged on invested, not committed, capital, so LPs do not pay to hold undrawn commitments. The European whole-fund waterfall and 7% preferred return mean carried interest is earned only after the whole fund returns capital plus the preferred. Distributions are quarterly. Full legal terms are set out in the PPM and LPA, summarized in the Data Room.
Three partners with complementary careers in origination, underwriting, and restructuring run the fund and sit on its Investment Committee.
David Reyes, Managing Partner. Eighteen years in leveraged finance and private credit, most recently as Head of Originations at a large public BDC platform where he ran a twenty-person desk and structured more than $3B of senior secured facilities. He sets strategy, chairs the IC, and owns LP relationships.
Sarah Chen, Partner, Underwriting. Fourteen years in corporate and leveraged credit, formerly a Senior Credit Officer at a large-cap credit manager leading diligence on middle-market first-lien and unitranche deals. She runs underwriting, credit modeling, and the IC memo process, and holds the CFA charter.
Michael O'Brien, Partner, Portfolio & Workouts. Twenty years in restructuring and special situations across multiple cycles. He owns monitoring, covenants, amendments, and recovery, and is the fund's downside desk. The partners are supported by an analyst bench, a fund controller, and an advisory group. All names are illustrative.
Fund II is the same team and the same discipline as Fund I, with more capital. Fund I's record is the best evidence for the strategy.
| Fund I (2019 vintage) | Value |
|---|---|
| Capital deployed | $210M |
| Loans originated | 24 |
| Realized losses | Zero |
| Gross MOIC (realized) | 1.6x |
| Net IRR to date | 10.8% |
| Status | ~85% realized / harvesting |
Two representative outcomes: Project Anchor, a $15M first-lien to an industrial services company, refinanced at par after 18 months for a 1.3x and a 14% IRR. Project Beacon, a $20M unitranche to a field-services SaaS company, exited via a sponsor sale for a 1.5x and a 16% IRR. Past performance of Fund I is illustrative for this sample and does not guarantee Fund II results; figures are net of fees, with gross MOIC shown on realized positions only.