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40 WINES&VINES September 2015 FINANCE What Finance Insiders Think An influential panel shares its views on trends, deals and interest rates By Ben Narasin DEBT How has the debt market for the wine industry been in the past year? ADAM BEAK, BANK OF THE WEST: Strong and moving toward stronger. The strength of the wine business, along with the sex appeal that always seems to come along with it, has continued to bring in different parties. MARK BRODY, UMPQUA BANK: Healthy with a high level of interest, and large wineries are performing well. CHARLES DAY, RABOBANK: It seems that all lenders in the space have been seeing growth in their re- spective portfolios. Market growth is bringing in new players, and many existing borrowers have been adding debt to fund their growth. JASON HINDE, EXCHANGE BANK: Great crop years and a ris- ing tide of wine buying have put a lot of wind in everyone's sails; life has been good! Debt is there for anyone in the wine industry to have. What's happening/ happened with interest rates? BEAK: Rates have been fairly sta- ble, but we expect some movement upward in the long term. It's a great time to lock in. WILLIAM BISHOP, BMO HARRIS BANK: Although the Fed- eral Reserve has constantly threat- ened upward interest rate movement over the past year, no sig- nificant action has occurred. Con- flicting economic data has stalled any upside interest rate movement. Clearly there is a strong potential for a 0.25% raise in the second half of 2015. Although wineries with heavy debt loads would be impacted, a 0.25% rate increase would not be overly detrimental to the sector. BRODY: For the best companies, rates continue to get better as in- tense competition exists for their business. The low interest rate envi- ronment also continues to be in the favor of borrowers irrespective of a given bank's spread. It is hard to imagine that both short- and long- term rates won't be higher five years from now. DAY: Short-term rates haven't changed, though the expectation for a Fed rate hike in fall 2015 seems to be the consensus by most traders following that market. The U.S. economy is probably picking up enough steam to allow the Fed to bump up rates, but the low in- flation rate and international de- velopments affecting global rates might combine to keep those in- creases minimal. Longer-term rates showed some volatility in the past 12 months, with a sharp decline in long-term U.S. Treasuries followed by a recent run up—but the net change from where we were a year ago is minimal. ROB McMILLAN, SILICON VALLEY BANK: Long-term rates started at historic low levels and moved up about three-quarters of a point through the year. Short-term rates haven't moved for years, but that's expected to change toward the end of 2015. Competition for busi- ness has been strong for the past few years, and overall spreads have moved down over that time. There isn't much room for thinner spreads at this stage. Overall rates remain at historic lows but look to rise slightly when the year is out. HINDE: There are two components when speaking about rates; the first is what is happening in the short- and long-term rate markets such as Prime, LIBOR and Treasuries, and the second is how much are lenders charging above these various indexes. To address the first, we have had historic low rates—even nega- tive interest rates in Europe—since 2008. Short-term rates have re- mained at historic lows with no change, however the longer term rates have been bouncing around like a game of Pong. The 10-Year Treasury (Note) was down to 1.68% in January 2015, it is now in the 2.30% range—a 50+bp (basis point) swing within five months! The central bank has been rattling its sword of rate increases for some time, and it appears there will be a modest increase in 2015 to short- and long-term rates. Most reports I've read have the 10-Year Treasury around 3% by next summer (2016). Bottom line is that rates will in- crease, but hopefully gradually. I do not believe the Fed will allow rates to go up too high because of what it would do to the balance sheet of the U.S. government. The current average rate on all U.S. government We asked our panel of finance experts what's been happening in the wine industry during the past year. Here's what they had to say about: "Rates have been fairly stable, but we expect some movement upward in the long term. It's a great time to lock in." ADAM BEAK, BANK OF THE WEST "Debt is there for anyone in the wine industry to have." JASON HINDE, EXCHANGE BANK