Wines & Vines Home
   
 
Welcome Guest
LOGIN |  CREATE ACCOUNT
 
 
September 2013 Issue of Wines & Vines
 
SUBSCRIBE   »
 

Recovery Strengthens Wineries' Credit

Nascent rate increases don't negate the historically low cost of finance

 
by Ben Narasin
 
 
The story of wine industry finance during the past 12 months combines contradictions and consistency. The contradictions come in the form of increased activity, competition and expanded players in some areas of finance, contrasting with consolidation in other areas—including the failure or exiting of some private-equity players entirely. Consistency comes in the form of uniformly low interest rates throughout the year, although a window into increases has appeared of late, and it is rocking financial environments far beyond just those for wine.

The backdrop for wine finance during this period has been one of continued economic and wine industry recovery. The upturn that we reported last year has continued, with increasing consumer demand for wine paralleling the perception of an improving economy following the recession. “From a consumption standpoint, consumers are recovering and continue to increase their rate of purchases,” says Rob McMillan, executive vice president and founder of Silicon Valley Bank’s Wine Division.

Wine businesses that navigated the crisis have strengthened, resulting in greater credit worthiness. This increased bankability, combined with banks’ access to capital at record low rates, has generated increasing desire to lend into the now more secure and more profitable sector. “Agriculture is one of the real bright spots in the California economy, and banks are starting to notice that,” says Ernie Hodges, executive vice president of Farm Credit West. “It’s very profitable for most lenders and most growers.”

Banks jump back in
The increased attractiveness of lending into agriculture (and wine lending specifically) has started to draw new players into the market. “It is a borrower’s market, with several commercial banks jumping back in due to the improved outlook,” Hodges says. More banks mean more bidders for A+ credit quality deals, which puts pressure on pricing, tightens interest rate spreads (the difference between what a bank pays to borrow money and what it charges to lend it out) and lowers rates for the best borrowers. “It’s not surprising to see credit offered at sub-prime (i.e. below prime rate) pricing in competitive deals,” McMillan says. “Borrowers with the A credit have the power now.”

As lending has increased, the opposite is true on the equity side—or, more accurately, the private equity side of the equation. “There have been some major shifts,” says Vic Motto, an investment banker and the co-founder, chairman and CEO of Global Wine Partners. “The interest in equity capital has substantially diminished as losses, the collapse of a major vineyard fund and of a major REIT (real estate investment trust), the liquidation of the largest consolidation, the collapse of a specific wine fund and a hedge fund that invested in distressed properties foreclosing on those, has tempered the interest of outside capital that didn’t have industry expertise.”

To illustrate this point Motto points to:
• CalPERS selling off its Premier Pacific Vineyards portfolio, “the majority of which have been sold at somewhat distressed prices.”
• Ascentia Wine Estates, which had “a couple hundred million dollars of transactions, which last year liquidated at a huge loss.”
• “Hedge funds that loaned to distressed wineries, foreclosed and now own them, like the former Kirkland Ranch. There may have been others.”
• “VinREIT, think over $100 million, liquidated all its properties at distressed prices.” Motto’s firm was involved in the creation of VinREIT, but it is no longer involved. The financial sponsor, Entertainment Properties Trust, a NYSE-listed REIT, decided to liquidate the VinREIT assets, implemented primarily in 2012.

As the weaker players left the system, the remaining organizations began to standardize what they did well and better define their spaces in the market.

“Foley, Vincraft, Bacchus, we’ve all gone into our respective corners,” says Quinton Jay, managing director of Bacchus Capital Management. Each is focusing on “what we are known for and the strengths we bring to the table.”

One outlier, a relatively new player to the equity game beginning to garner attention, is Charles Banks of Terroir Capital. Banks first burst onto the wine scene with his involvement in the acquisition of Screaming Eagle. He now appears focused on building his own portfolio of premium brands through acquisition, most recently Mayacamas Vineyards in Napa Valley. He’s “another player getting active,” Jay says. “That’s interesting to me. Another potential gorilla in the mist.”

Deal size up and down
Deal sizes during the past year have told a divergent tale, having both grown and shrunk. Deals on the lending side appear to be moving up, as growing concern about grape supply has increased interest in acquiring vineyard land, which requires larger capital commitments at scale than many other winery investments. Meanwhile, equity transaction sizes tend to be trending down.

Constellation Brands Inc. and other major producers have largely filled the gaps in their portfolios, and the consolidation of bigger wineries seems to have, at least for the moment, subsided to allow a lot of financial and operational digestion to take place. “Large winery consolidation has slowed,” Motto says, “and deal size is shrinking.”

As deal sizes have shrunk in contrast to the year before, interest rates have remained consistently low. Low rates existed throughout the year for high-quality credit, and in fact rates have fallen more due to compressed spreads from more aggressive competition. However, at the tail end of our reporting it became clear that new activity by the federal government is starting to change that.

“We’ve seen a pretty dramatic change in the past six weeks (as of June 24),” says Mark Brody, senior vice president and manager of Bay Area Commercial Banking at Umpqua Bank. He leads Umpqua’s Wine Specialty Group, “where long-term (Treasury) rates are up 50-plus basis points. There’s a sense we’re off the bottom and will remain off the bottom. We’re very definitely seeing upward pressure.”

Beyond the wine industry, the entire financial market is focused on this new real ity. Short-term rates have not been meaningfully impacted yet, but they likely will be, and long-term rates clearly have been effected.

Of course, rates are still low overall. “All rates are still very reasonable over a historic perspective,” Brody says. If you have the use for the money, and the top-tier credit to get banks to compete, it remains an exceptional time to borrow.

 
SHARE   »
Print this page   PRINTER-FRIENDLY VERSION   »
E-mail this article   E-MAIL THIS ARTICLE   »
Close
 
Currently no comments posted for this article.
 
CURRENT MONTH'S FEATURES INDEX »


 
Wines & Vines Home
 
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
info@winesandvines.com
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wine Industry Metrics
 
Off-Premise Sales » Month   12 Months  
July 2015 $603 million
6%
$8,136 million
6%
July 2014 $568 million $7,701 million
     
Direct-to-Consumer Shipments » Month   12 Months  
July 2015 $66 million
9%
$1,906 million
14%
July 2014 $61 million $1,674 million
     
Winery Job Index » Month   12 Months  
July 2015 323
4%
262
18%
July 2014 312 222
     
 
MORE » Released on 08.13.2015
Direct To Consumer
Wine Shipping Report
2015
 
Download full report »
 
 

FEATURES
 

Practical Winery & Vineyard Library
 
Search the PWV archive »
 
 

CALENDAR
  • September 6
     
    Harvest Wine Celebration
     
  • September 11-13
     
    Cincinnati Food + Wine Classic
     
  • September 17
     
    Winejobs.com Summit
     
  • September 18
     
    Owning and Operating an Urban Winery or Brewery
     
  • MORE »
 

READER COMMENTS
 
Article: Nielsen Unpacks Package Design »
 
Okay, I'll state the obvious (to anyone with CPG experience) - the Wine Biz is...
Reader: Joel Miller
 
Article: Nielsen Unpacks Package Design »
 
Very interesting reading. Certainly agree with the more indirect approach of evaluating the extent to...
Reader: Roger Brooks
 
Article: Experimental Solution to Pierce's Disease »
 
Congratulations to the team! It is amazing what can be done with biological controls. Keep...
Reader: Bruce Coulthard
 
Article: The Spiciest Wines You Have Ever Tasted »
 
There are some wines from New Mexico are infused with pepper flavors. Also, The Wine...
Reader: Guest
 
Article: Does Red Blotch Affect Wine? »
 
I have a grapevine in my polytunnel in east London which is showing signs of...
Reader: Guest
 
 


2015 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
 
 
EXPANDED ONLINE SEARCH INCLUDED WITH PURCHASE
 
ORDER NOW »
 
LEARN MORE »
 
 
Wines & Vines Magazine
 
 
   LEARN MORE »
 
   SUBSCRIBE »
 
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
 
LEARN MORE »
 
ORDER NOW »
 
 
The Wines & Vines Online Marketing System
 
The Industry Standard winery marketing application
 
FREE LIVE DEMO »
 
VIEW VIDEO »
 
 
 
 
Latest Job Listings
 Part Time Wine Sales -...
 Chicago, IL
Sales and Marketing
 Sales And Marketing Co...
 Los Angeles, CA
General Administration and
 Vineyard Crew Foreman
 Napa, CA
Vineyards
 Events & Hospitality M...
 Rutherford, CA
DTC, Tasting Room and Retai
 Cellar Workers Needed
 Napa, CA
Cellar, Lab and Production
 Tasting Room Associate
 Sonoma, CA
DTC, Tasting Room and Retai
 Bottling Mechanic
 Lodi, CA
Cellar, Lab and Production
 Bottling & Warehouse C...
 Lodi, CA
Cellar, Lab and Production
 Production Supervisor
 Lodi, CA
Cellar, Lab and Production
 Brand Ambassador, Full...
 Austin, TX
Sales and Marketing
 
More Job Listings >>
Follow Us On:
 
 





Home  |  About Us  |  Editors  |  Subscribe  |  Print Edition  |  Digital Edition

Advertise  |  Site Map  |  Contact Us  |  Privacy Policy
 
 
Copyright © 2001-2015 by Wine Communications Group, Inc. All Rights Reserved.
No material may be reproduced without written permission of the Publisher.
Wines&Vines does not assume any responsibility for any unsolicited manuscripts or materials.