Wines & Vines Home
Welcome Guest
September 2013 Issue of Wines & Vines

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.

Print this page   PRINTER-FRIENDLY VERSION   »
E-mail this article   E-MAIL THIS ARTICLE   »
Currently no comments posted for this article.

Wines & Vines Home
866.453.9701 | 415.453.9700 | Fax: 415.453.2517
65 Mitchell Blvd., Ste. A San Rafael, CA 94903
Wine Industry Metrics
Off-Premise Sales
IRI Channels »
Month   12 Months  
October 2015 $604 million
$8,267 million
October 2014 $572 million $7,790 million
Direct-to-Consumer Shipments » Month   12 Months  
October 2015 $288 million
$1,919 million
October 2014 $284 million $1,751 million
Winery Job Index » Month   12 Months  
October 2015 179
October 2014 139 226
MORE » Released on 11.13.2015


Direct To Consumer
Wine Shipping Report
Download full report »


Practical Winery & Vineyard Library
Search the PWV archive »

  • December 2
    2015 UC Davis Grape Day
  • December 3
    North Coast Wine Industry Expo
  • December 5-6
    Holidays in the Vineyards
  • January 13-14
    DtC Wine Symposium
  • MORE »

Article: Kronenberg Leaves Legacy of DtC Opportunities »
This is amusing. While I do not quarrel with Paul's many contributions over the years,...
Reader: Guest
Article: Kronenberg Leaves Legacy of DtC Opportunities »
Wow! This this a re-writing of history! As a founder and namer of Family Winemakers...
Reader: Guest
Article: Can Wine Grapes Be Grown Without Chemicals? »
It sounds like your problem is with semantics, not with the application of products to...
Reader: Carol Collier
Article: Cuvaison Upgrades to Second Generation of Pellenc Sorter »
I'd like to know what they are doing with the sorted stuff, especially the first...
Reader: Matthew Delicata
Article: Growers Suffer Low Yields in Paso Robles »
This year's Paso Robles/San Miguel "mature" Cabernet Sauvignon yields were down to 30% of normal while...
Reader: Guest

2016 Directory/Buyer's Guide
The Wines & Vines Directory and Buyer's Guide
Wines & Vines Magazine
Digital Edition Now Available!
Wines & Vines Digital Edition Now Available
The Wines & Vines Online Marketing System
The Industry Standard winery marketing application
Latest Job Listings
 Bottling Line Technici...
 Clarksburg, CA
Cellar, Lab and Production
 Regional Sales Directo...
 Northeast Us, NA
Sales and Marketing
 Direct To Consumer Man...
 Stonewall, TX
DTC, Tasting Room and Retai
 Senior Hospitality Man...
 Sonoma, CA
DTC, Tasting Room and Retai
 Compliance Specialist
 Santa Rosa, CA
General Administration and
 Wine Club Manager
 St. Helena, CA
DTC, Tasting Room and Retai
 Hospitality Lead
 Yountville, CA
DTC, Tasting Room and Retai
 Director Of Sales
 Southern California, CA
Sales and Marketing
 Vice President-Sales A...
 Napa, CA
Sales and Marketing
 Key Account Manager-Of...
 Midwest- Multiple Positions In Selected Cities, FL
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.