Posted: May 25th, 2022
Calaveras Vineyards sits on 220 acres in Alameda Valley, California. Anne Clemens, a senior vice president at Goldengate Capital, received a loan proposal from Tom Howell, a managing director with NationsBank’s investment-banking group. The brochure described the prospective management acquisition of Calaveras Vineyards and solicited Goldengate’s participation in the $4.5 million senior financing facility. The facility would consist of a $2 million term loan and a revolving credit of up to $2.5 million. Clemens needed to decide quickly whether the proposed terms were attractive, where to position Goldengate in this credit, and whether to offer a counterproposal on terms.
The Vineyard is the beneficiary of a trend of strengthening brand recognition. The organization used to sale solely through wholesale distribution channels, but being marketed as a premium brand has significant impacts upon potential profitability. However, in its current state, the Vineyard is low on capital and some judgement calls about the feasibility of the financial package must be made. The following analysis focuses on the 5Cs and other relevant decision criteria.
Character is an estimation of the management’s experience, personal, and business credit history. It was determined that the character of the borrower was good.
The Debt / Total Asset and Debt/Equity ratios decreased in recent years
New Application for Credit:
Winston-Fendall will take over marketing of the company and will treat as its highest priority. Winston-Fendall has also agreed to provide collection services and will pay Calaveras any receivables left unpaid after 90 days. This arrangement would relieve Calaveras of any substantial credit risk.
Management Experience and Success:
Calaveras market strategy to move from the bulk-wine sales into the premium-brand market has largely successful. Upon acquisition of the vineyard, Winston-Fendall will take also over marketing of the company which should further established its premium brand status in the market.
Capital is the overall financial strength of the based on financial performance and asset utilization. The following financial ratios were calculated to provide an overall picture of the capital structure of the Vineyard.
Compared with other players in the industry, the Vineyard has a much higher debt to equity ratio based on these calculations.
Days in AR
Days in Inventor
Days in AP
Collection period is also much higher than many of the other firms in the industry.
Cash Flow: Decent
Capacity refers to the company’s ability to generate sufficient revenues to achieve organizational goals and meet their investors’ obligations.
ROS (net profit margin)
All of the profitability metrics show steady growth which is a good sign. It is likely that the company can continue this growth path.
Although the EBITDA/Debt ratio is below 1, the trend suggests that it will reach one in the near future.
Although no lender wishes to ever consider collateral as a form of repayment because it means that the organization has somehow defaulted, it is a necessity to consider what the value of that collateral is, just in case.
Compared with the industry’s average, liquidation the liquidation value of the collateral is much higher.
The condition represents all the external factors that might affect the business’s operations. Despite all the possible variables, the condition was deemed to be good as evident from the growth in wine sales. Wine sales in supermarkets have grown 7.4% in 1992, while beer sales have grown only 2.2%, less than inflation. This may be an impact of the French studies that were produced or consumers just changing consumption patterns.
As an alternate using the P/E ratios to calculate the terminal value, we can find the value of CV is $5,128,000
Product line / Comparable
Premium/Finn & Sawyer
Weighted average P/E
PV of Term. Growth FCF (1+g%)
PV of Term. Growth TV of tax sh.
After reviewing the financial statements and balance sheets thouroughly, it is recommended that Goldengate Capital be approved to acquire Calaveras Vineyard. The potential profitability in this individual business, as well as the industry in general, is both lucrative. The lack of adequate capital is somewhat of an issue; however there are ways to increase the Vineyard’s capital ratios. Calaveras could make better use or liquidate some of the fixed assets; especially the non-vineyard land or any other assets that do not contribute in any way to the bottom line.
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