Issue link: http://winesandvines.uberflip.com/i/365438
38 W i n e s & V i n e s s e p t e m b e r 2 0 1 4 W hen Wines & Vines printed its first cover story about wine in- dustry finance two years ago, the picture was mixed at best. The aftershocks of the Great Recession were still echoing in minds and affecting terms of lend- ing. Signs of light were starting to appear, and financial tension was easing for the stron- gest players. In 2013 our industry expert panel cautiously proclaimed we were almost entirely back in the sunshine, with financial darkness receding and interest rates at record lows. Market challenges had created a Dar- winian process dividing the strong and cred- itworthy from the weak—and everyone wanted to bank the strong. Most panelists tempered their optimism with caveats that things "seemed almost back to normal." Both debt and equity transactions were happening at a quickening pace—and at levels attractive to both borrowers and lenders, and to buyers and sellers. This year a broad-based response across our expanded expert panel showed the trend of improvement continuing, with nary a qualifier in site. If anything, the lending market appears to be expanding, both in volumes and players, and is continuing to be fueled by historically low interest rates now married with increased optimism. Interest rates remain at record lows, al- though some inflationary signals and changes in federal bond-buying practices (the easing and ultimate elimination of "quantitative eas- ing") have created some increases in long-term interest rates and expectations of more in- creases in the future. Short-term rates have remained constant and attractive at historically low levels, though several panelists expect those rates to start increasing as early as next year. Spreads be- tween federal interest rates and those provided to winery and vineyard borrowers have re- mained tight and attractive due to meaningful competition for the best credits. Broad expectations of an increase in interest rates have resulted in a divide between the goals of lenders and borrowers. Borrowers are seeking to lock in low, likely unsustainable rates with longer terms. Lenders are seeking shorter terms in order to take advan- tage of rising rates as loans mature. Get your money while it's cheap, and soon, is advice worth con- sidering for those with the option. And more busi- nesses appear to have the option. The increased financial health of the wine industry in general has made the sector more attractive to a wider range of players, which has attracted more participants interested in offering capital. More traditional banks and lenders have been lending to, or examing lending to, the wine industry, although the preponderance of lend- ing remains with the established players. This increased competition—or the threat of com- petition—has helped maintain low rates for wine industry borrowers in general as lenders fight to win the best deals. As with all prior reports we have researched, finance players continue to point out the sig- nificant chasm between well-run, strong, finan- cially viable businesses considered "bankable" and weaker players often viewed as "unbank- able." The strong get exceptional terms, the good get good terms, and the weak struggle to get terms at all. Like the U.S. economy, the strong have gotten stronger, and the weak have gotten little help. Moving from the unbankable to bankable category is far more challenging than the sim- ple two-letter variance in diction might imply; it represents a shift in the fundamental finan- cial health of the entire business and its com- ponent parts. Finance Outlook Gets Sunnier Caveats of a year ago are gone, and more players are interested in the wine industry By Ben Narasin T he strong get exceptional terms, the good get good terms, and the weak struggle to get terms at all. Like the U.S. economy, the strong have gotten stronger, and the weak have gotten little help. F I N A N C E SpecIAL RepoRT: Wine indUSTry Finance 2014 Editor's notE: For this third annual Wine industry Finance issue, four of our writers filed reports about the state of wine industry finance based on the views of banking, investment and winery executives as well as their own research and analysis of the trends. On this page Ben narasin gives an overview of wine industry attitudes, lending and sales. On page 44 are Wines & Vines' choices for the Top 20 Finance companies covering large, specialty and community banks, plus farm credit, insurance companies and second-lien holders. C O V E R S T O R Y Finance OVerVieW, page 38 Q&a WiTh key FinanciaL pLayerS, page 40 TOp 20 Finance cOMpanieS, page 44 LOOking Back WiTh daVid Freed, page 46 inTerVieW WiTh charLeS BankS, page 49 Wine indUSTry Finance 2014