Issue link: http://winesandvines.uberflip.com/i/152772
FINANCE How have loan interest rates been affected? What was the deal climate over the past year? Rob McMillan: We're at an all-time low for interest rates in my memory. Rob McMillan: We've had fantastic years. It's a combination of continued efforts, low interest rates and refinancing. It's just a continuation. It's been a good couple of years for sure. Mark Brody: Rates have certainly dropped over the past year both in terms of compressed spreads for banks and the benign interest rate market that has existed, but we've seen a pretty dramatic change in the past six weeks with longterm rates up 50-plus basis points. I have a sense we're off the bottom and will remain off the bottom. For the very best deals there's going to be an extreme level of competition—but probably less so as one goes to the next tier down. Ernie Hodges: They didn't have far to go down at the beginning of the year. It's been four-and-a-half years since the Fed raised the discount rate. We're seeing some evidence of spread compression for better quality deals, and we're seeing new entrants into the market. Rates until the last 45 to 60 days have been very stable and at historically low levels at both the short- and long-term side. In the past 45 to 60 days there has been a very significant increase in long-term rates. The Fed has said it's not increasing short-term rates for a couple of years, but bond and general financial markets have already started increasing long-term rates by 60 to 75 basis points. quIntOn jay: "We're seeing a lot of vineyard deals because wineries clearly need grapes for their projects." VIC MOTTO: "Any vineyard producing a good crop, those always sold. … People saying vineyards (are) Perry DeLuca: We're a LIBOR (London Interbank Offered Rate) based lender, and LIBOR has been consistently low. Our spreads have not changed over the last year. We see competitors put pressure on us on deals, with rates being very competitive, but it's hard for me to say spreads have tightened over the past year. It was very competitive to start the year, and it's very competitive now. going crazy are the people trying to sell them." Vic Motto: Deals are getting done, but there are fewer deals in the industry than in the past, and the deals are smaller. I'd characterize the majority of what was sold as wineries sold under duress by the lenders and wineries not doing well that sold. Of course I'm talking about M&A to describe the sale of an operating business—not the sale of a vineyard or an underutilized or unused winery. That's not M&A; those are asset sales. I'm seeing people talk about vineyard sales going crazy, but I'm not seeing it. Any vineyard producing a good crop, those always sold. They sell in good times and bad as long as they are good properties. People saying vineyards are going crazy are the people trying to sell them. Vic Motto: For M&A, buyers are much more averse to risk and conservative in decision-making. For loans, banks are aggressively competing with each other for good business. If you have good credit, it's a great time for you; rates are very low and projected to remain there. It's a great time to get long-term money if you can qualify for it. We're slowly getting back to the conditions we were at before financial meltdown, and I see slow movement each year, but we're not back yet. It is easier to qualify for a loan than it was a year ago. Banks are risk averse and cautious and want the best credits. Businesses with a predictable income stream and good balance sheet can get what they want today. Marginal and startup businesses will find it hard. Mark Brody: Every downturn some businesses shrink, go away or get acquired. The strong companies that emerge really differentiate themselves. In some ways it's clear who's doing well and who's not at this stage of the recovery. It's easier to spot the companies you want to do business with as a banker. Have the players, types of deals, risk tolerance or deal terms changed? Perry DeLuca: A lot of the banks emerged from 2007-08 very healthy and liquid. You actually see more competitors on the lending side. There aren't any lenders that I know of sitting on the sidelines waiting for the market to come back. I don't see a shaking out there. Over the last year, it's clearly been a very strong robust market. Rob McMillan: For loans, there's still a lot of competition for the best deals. I'd underscore that. That's where you can find sub-prime pricing on those deals. Now more than ever we're seeing other banks, which come in and out of the business, coming back in. They tend to wait for the water to be fine to jump in; that's an indication of the (perceived lower) level of risk—and a sign of more competition for the best deals. Ernie Hodges: We believe some of the new players might be willing to compromise on terms and conditions that we are not willing to. They're throwing some really low rates out there, and in some instances they are getting some of those deals. There have been other commercial banks that have started forming agricultural lending that weren't there three or four years ago. Ag is one of the real Vic Motto (Global Wine Partners) is an investment banker and the co-founder, chairman and CEO of Global Wine Partners. He specializes in wine industry mergers, acquisitions and investments. He serves on the board of directors of several wine industry trade groups, universities and wine companies. He actively teaches, writes and speaks about the wine industry. Quinton Jay (Bacchus Capital Management) is managing director of Bacchus Capital Management LLC, a private-equity fund specializing in equity investments and second-lien loans to the wine industry. At Bacchus, Jay sources and evaluates potential transactions and oversees the performance of the fund's portfolio wineries. Prior to joining Bacchus, Jay was general manager of Artesa Vineyards and Winery, and prior to that he founded an independent wineryconsulting firm. Win es & Vin es s ept em b er 20 13 33