Issue link: http://winesandvines.uberflip.com/i/80303
CO VER S T OR Y Example 3: Buying a producing vineyard Vineyard purchases are financed, assuming adequate credit quality and cash flows of the borrower using an LTV ratio much like the way a home mortgage is calculated. The amount of the loan is based on the appraisal of the property, and a loan of 65% of the value is typical. Assuming an acre of planted Napa vineyards has an appraised value of $250,000 per acre, the loan would finance $162,500, and the rest would come from equity. Assuming $5,000 per ton for Cabernet and four tons per acre, the cash flow the vineyard would produce would equal $20,000 in annual grape revenue. The costs as- sociated with the loan to produce the revenue would be approximately $8,121 of in- terest expense, assuming a fixed rate loan at 5% plus principal repayment of $6,000, assuming an amortization of 25 years, before farming and administrative costs. Example 4: A typical working capital line structure Assuming you have the cash flow to support the business and have an appropriate credit, a working capital line is typically set up to allow you to draw 80% of the value of your approved accounts receivables, 55% of the wholesale of your finished bottle inven- tory and 55% of the value of the secondary market value as bulk or unbottled wine. When wine goes from barrel to bottle, it comes out of your allowance to draw against bulk wine and is added to the allowance you can draw on inventory. When inventory is shipped and billed, it comes out of your inventory allowance and goes into your receivables allowance in an ever-increasing value, you hope. Most working capital lines are interest-only with an annual renewal cycle. Example 5: Vineyard development Once again a 65% LTV is common, but the loan may be provided on "interest- only terms" during the first three to five years when the vineyard is not produc- ing. It can then be refinanced or con- verted to terms similar to Example 3. Example 6: Tanks While a borrower can secure a five- to 12-year equipment loan for the purchase of new tanks, as they are long-lived assets, it's more typical to have the tank financing included in the winery construction. Example 7: Barrels While some companies will lease barrels, as the product is more an ingredient than an asset, barrels are typically financed in a standard rotation using part of a work- ing capital line. Enduring Relationships Begin at Prudential Agricultural Investments Build on The Rock strategic capital and expertise for the wine industry www.bacchuswinefund.com (415) 828-8898 bacchuscapital@bacchuswinefund.com Serving America's agricultural long term financing needs since 1898. ROSEVILLE OFFICE 2998 Douglas Blvd., Suite 225, Roseville, CA 95661 Fax: (916) 789-4076 RACHELLE SCHLESINGER, Principal Tel: (916) 789-4073 WILLIAM BEYER, Principal Tel: (916) 789-4070 Full Service Wine Compliance Licensing & Permits ABC & TTB 707 • 963 • 9733 www.divinecompliance.com WINES & VINES SEPTEMBER 2012 33 7108 No. Fresno St., Suite 400, Fresno, CA 93720 Fax: (559) 437-3260 FRESNO OFFICE WILLIAM LEWIS, Principal Tel: (559) 437-3261 FRANK OBERTI, Principal Tel: (559) 437-3262 WINE INDUS TR Y FINANCE