This week we chat with Mary Katherine DuBose, Co-Head of Asset Backed Finance and Securitization, Asset-Backed Finance, Wells Fargo Securities. ABF provides direct structured lending as well as the underwriting and distribution of asset-backed securities for over 500 clients and a risk portfolio of approximately $120BN across consumer, commercial, residential and corporate debt sectors.

The Lead Left: Mary Katherine, thanks for making time for us. I saw you on a great panel at the recent Milken conference, so wanted to continue that dialogue. What’s your view of this market?

Mary Katherine DuBose: Given the tightness of liquidity in the broadly syndicated loan market, we’re seeing folks migrating into the larger middle market, even the traditional middle market. These are companies with $15-40 million dollar ebitda. We are witnessing higher leverage combined with weaker covenant packages than we have in some time.

TLL: We agree with that observation. Does this worry you all at Wells?

MKD: The market is diversified and fragmented, therefore the middle market encompasses a large opportunity. However to see middle market borrowers with excessive leverage and weak to no covenants at this stage of the recovery cycle it is concerning and we are watching. We are more cautious today.