Second large harvest drives financing demand

NORTH COAST -- Wine industry lenders in the North Bay have seen another uptick in borrower demand in the latter half of 2013, driven in part by a need to process a harvest that appears to rival last year's crop and a continuing trend of mergers and acquisitions throughout the industry, according to those lenders.

Drawing parallels with the end of 2012, those lenders noted that the North Bay wine industry has once again experienced a large inflow of quality grapes and an improved outlook for consumer demand. That cash flow has boosted confidence, spurring demand for financing and attracting the attention of investors both inside and outside of the wine industry.

[caption id="attachment_47915" align="alignleft" width="144"] Rob McMillan[/caption]

"This will probably be a record year in loan growth for Silicon Valley Bank's wine division," said Rob McMillan, who founded the St. Helena-based division in 1992. "There's quite a bit of money that has come into the businesses. Along with that comes a demand for debt."

While the record 2012 harvest came at a time when wineries faced a shortage of North Bay grapes, the prospect of another high quality, high-volume harvest in 2013 has some seeking financing to increase capacity, said Bill Rodda, vice president at American AgCredit.

Growers were able to command a premium on overages amid 2012's intense demand. But the lack of available tank space this year has left some offering greater discounts on excess supply while looking harder for buyers, he said.

"Last year was a banner year. The wineries were in need of grapes at that time," Mr. Rodda said. "Space was an issue in the industry this year."

While the trend stands to somewhat mitigate the price of grapes in 2013, North Coast fruit still commands a significant premium that some wineries remain reluctant to pass on to the consumer. Those slimmer margins have forced many in the industry to be more analytical in their approach, and helped add more momentum to the current wave of mergers and acquisitions, Mr. McMillan said.

An effort by wineries to reduce expenses by acquiring vineyards and securing their own supply remains a trend, though Mr. McMillan noted that hedge funds and other buyers have been attracted by the industry as an investment as well.

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