The cold 2011 season and wet harvest dampened North Coast crop yields by as much as one-third from norms by early estimates, and lenders are closely observing grower ability to make payments on crop and other loans with fewer tons to sell and higher vineyard-management costs.
Yet, a rebound in crop prices late in the season and property values has helped offset that hit somewhat, lenders said.
“We’re able to work with growers on a lower-leverage basis because crop value and property value have gone up precipitously,” said Bill Rodda, vice president and manager of American AgCredit’s Santa Rosa branch.
The agricultural lending cooperative used to limit crop loans to 70 percent of the budgeted value, but growth in the value of vineyards in the past decade have pushed that ratio lower, he said.
Wineries and growers have been talking grape-purchase terms for nearly three years, first when sales of higher-end wines slowed dramatically then with the lower-than-normal crop yields of the 2010 and 2011 harvests, noted Bill Stevens, manager of Silicon Valley Bank’s St. Helena-based wine division.
“Growers might have more negotiating leverage,” he said.
He noted that nonperforming or troubled loans make up single-digit proportions of the loan portfolios for a number of top North Coast wine industry lenders.
Yet the traditional lending environment continues to face the challenges of the past two years, with a number of banks wanting to grow their loan portfolios but lenders increasingly scrutinizing lending practices, according to Mr. Stevens.
“The credit-worthy have a lot of options, and those that are not credit-worthy are out in the cold,” he said.
In this environment, alternative lending sources beyond institutions such as banks, insurance companies and pension funds have been filling some gaps with equity, mezzanine and other forms of subordinate debt.
Such firms include San Francisco’s Bacchus Capital, which funded Sbragia Family Vineyards in October; San Francisco GESD Partners, which backed Ascentia Wine Estates in mid-2008; San Anselmo’s Vinum Capital, which facilitated financing for and structured Boisset Family Estates’ acquisition of Buena Vista from Ascentia and Entertainment Properties Trust in May; and longtime financier UCC Vineyards Group of Napa.
These additional funding sources combined with a “very positive long-term outlook for well-established and well-run brands” are creating a lot of discussion about mergers and acquisitions, according to Jim Kimball, head of Wells Fargo’s North Coast regional commercial banking office.
“There will be some equity financing, with senior debt laid on top of it because of historically low long-term cost,” he said. “With that, we’re seeing equity or mezzanine financing coming into play, allowing buyers to get more for their money or equity.”
Correction, Nov. 17, 2011: Vinum Capital Management, LLC, facilitated financing for and structured Boisset Family Estates’ acquisition of Buena Vista Carneros Ascentia Wine Estates and Entertainment Properties Trust.
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