Taking Decisive Actions to Develop BDO Bench Strength
Steven V. Macko, Senior Managing Director, Western Region Head of Originations at Wells Fargo Capital Finance
Wells Fargo Capital Finance’s Steve Macko recognizes the need to spearhead the creative solutions required in developing new ABL talent.
ABL Advisor: Please give our readers a sense of the geographic region your group covers, the top industry sectors it lends to and the range of deal sizes the group finances?
Steven Macko: I run the loan originations team for the Western region at Wells Fargo Capital Finance where I manage major loan production offices in Santa Monica, San Francisco, Dallas, Chicago, Minneapolis and Vancouver. Basically, this includes everything west of Chicago -- that’s a fairly broad definition of what our Western region encompasses from a geographic standpoint. I have an East Coast counterpart that manages major loan offices in New York, Boston, Atlanta, Miami, Philadelphia and Toronto and the deal flow between the two of us is pretty evenly split.
Our funding capabilities range from $5 million to $1 billion and above, that is a rather large range as well, with our sweet spot being between $10 million to $500 million. We lend to a broad spectrum of industries and those sectors tend to be geographically driven. For example, in San Francisco and Boston we tend to lend to a lot of technology companies. In our Midwest offices, many of our deals are in transportation, energy services and heavy equipment. The Southeast generates a good amount of our healthcare deals. We have a very strong presence in retail that is nationwide.
ABL Advisor: From your perspective, how is this year playing out thus far in terms of asset-based demand?
Macko: Without a doubt, this year got off to a rather slow start. Part of it was driven by a very strong close in 2014 in which we cleaned out our backlog by about half, adding new logos to our portfolio and increasing loan volume. You feel pretty good about that at the end of the year, and on January 2, you find yourself asking, “What’s next?”
Looking forward, I think refinancings will dominate the ABL opportunity set. That’s my current outlook and I don’t see M&A transactions having a material impact on increasing our loan volume relative to last year. I also think that the impact of leveraged lending guidelines is going to make it harder for asset-based lenders to play a role in leveraged transactions.
While it’s a pretty frothy market out there, we remain optimistic about the balance of the year.
ABL Advisor: What are the biggest challenges you and your peers face in today’s ABL marketplace?
Macko: I think there are really two challenges. The competitive environment is one of the strongest I’ve seen during my years here at Capital Finance. We are in an incredibly competitive marketplace now from both a pricing and structure standpoint … there is no shortage of debt capital out there. If we look at our ABL competitors , they are all in pretty good health with strong appetite for loan growth. We are going to see extreme competition for deals that are “right down the middle.”
The other aspect of the competitive environment which isn’t all that new is the hedge funds and the business development companies. Today, we aren’t only competing against the traditional ABL players. We are competing against all of the new capital that is out there … the alternative capital providers that have grown not only in number, but in dollars under management as well. We aren’t necessarily structuring the deals in the same manner, but we are competing to provide capital to the same prospects.
Other challenges include increased regulatory oversight and more scrutiny around leveraged loans. Much of our business is coupled with other forms of debt – both junior and senior. The combination of that debt can drive leverage over six times … and the regulators are honing in at that high leverage. That could be part of the reason that this year got off to such a slow start because many lenders have been taking a “wait and see” approach with respect to the regulatory guidelines.
ABL Advisor: Asset-based lending is sometimes characterized as a “graying industry.” Please share your thoughts on that assessment.
Macko: If I look at Capital Finance, I’d say we are in a much better place today than we were even ten years ago in terms of recognizing the need to develop younger ABL talent and we are actually doing something about it. When I first began here, we typically hired only experienced professionals. That’s not the case today. We have a very active credit training program as well as a pipeline of summer interns that we hope will turn into team members as they graduate from college.
As it relates specifically to BDOs, we created the role of loan origination associate who serves as the right hand person to the BDO. We realized years ago that such a position would foster bench strength without the pressure of a budget for new loan volume.
ABL Advisor: What are your sales officers hearing when meeting with either existing or prospective borrowers? What are borrowers looking for in their lending relationships these days?
Macko: There’s a recurring theme we hear with regard to leveraged lending with our borrowers and private equity firms being keenly interested in the impact that the guidelines will have on our appetite to make new loans. That’s the conversation topic that’s front and center. Beyond that, there are many views out there in terms of interest rate increases and what that will mean for borrowers and their future cost of capital. And lastly, borrowers are interested on structures and how we can get creative in that regard to provide them with the capital they are seeking.