Essay on Calaveras Vineyards

In 1994, Tom Howell who was a managing director at Nations Bank’s investment banking group made a loan proposal to Anne Clemens working as a vice president at Goldengate Capital. The proposal was about acquisition of Calaveras Vineyars and that Goldgate was ready to put $4.5 million into it. The facility would consist of a $2 million term loan and a revolving credit of up to $2.5 million. 

There needed to be a decision taken on whether the proposed terms were attractive, where to position Goldengate in this credit, and whether to offer a counterproposal on terms. 

Calaveras Vineyards was situated in Alameda Valley, California, USA and occupied 175 acres. Esteban Calaveras founded the vineyards in 1883 in order to make wine for the Catholic Church. By the 1950s, the winery and vineyard had expanded into the production of table wines for sale to retailers and restaurants. Ownership of the vineyard changed hands in 1986, 1996, and 1992 and with each change, marketing organization had been changing. Most recently, Stout PLC, a British conglomerate with interests in alcoholic beverages and branded consumer products, had acquired the vineyards from another conglomerate. 

The products of Calaveras Vineyards can be broken down into the following categories:

Estate wines, which were made and bottled at the winery from a few selected varieties. The Sauvignon Blanc and Cabernet Sauvignon had been highly praised by numerous influential wrile the Petite Sirah was one of Calaveras’s oldest and best known varieties. All of the Calaveras’s estate wines were sold in the superpremium category.

Selected-vineyards wines, which were made from grapes purchased from selected vineyards and aged and bottled separately to preserve their outstanding characteristics. The Chardonnay was highly praised by numerous influential wine writers and had brought prestige to the Calaveras brand. All selected-vineyards wines were sold in the superpremium category.

California wines, which were made from medium-quality Calaveras produce. This category was declining in importance as Calaveras was able to elevate its wines to a higher status and pricing category under either the estate or selected-vineyards programs. 

Generic wines, which were made from lesser-quality produce of the estates, selected-vineyards, and California categories. 

Special-accounts wines, which were made from surplus, lesser quality wines, and from nonvarietal grapes. This wine was sold under special programs to airlines, hotels, and church parishes. 

The specific terms of financing would need to be determined through negotiations between the buyers and their creditors. 

Nations Bank had proposed that the revolving loan be secured by accounts receivable and inventory. The maximum commitment under the revolver would be $2.5 million, though the borrowing base would be equal to 85 percent of receivables and 75 percent of inventories. The interest rate on the revolving loan would be prime plus 2.0 percent. The term loan would amortize equally over five years, and would be secured by land, plant, and equipment. The interest rate on the term loan wold be prime plus 3.0 percent. The prime rate was currently 6.75 percent. As a rough initial assumption, Anne Clemens decided to assume a total interest rate of 9.5 percent on both the revolver and term loan. 

The proposal from Tom Howell noted that Calaveras Vineyards was currently carried on Stout’s books for approximately $7 million and that the fair market value of the assets of it was estimated to be $5-$7 million. Therefore, the purchase price for the assets of the firm of $4.122 million represented a significant discount. 

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