Are wineries borrowing for capital expenditures?
The weak economy has discouraged most wineries from expanding, but they still have to buy some things—like barrels, hardly a trivial matter with today’s barrel prices. Herron of Exchange Bank notes that barrel financing (typically leasing) is always needed, even when wine is not selling as quickly although many wineries have scaled back their own capital expenditure plans to preserve cash flow. Wineries are arranging fixed-rate leasing with perhaps a small premium over 2007 rates, but more reflective of higher long-term rate indexes (treasury yields). “Clean credit is a must, and the owners need to personally guarantee the leases,” says Herron. He says that larger ticket financing (tank farms, winery facilities) is definitely harder to secure given the deteriorating conditions and must have historical cash flow demonstrated to underwrite favorably. “The loose financing days in the wine industry are over…at least for another down-cycle.” Union Bank’s Barrett agrees. “It’s pretty quiet
