Financial Management Calaveras Vineyards Sits on 220 Case Study

Financial Management

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.

Data Analysis

Character: Good

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.

Credit History:

The Debt / Total Asset and Debt/Equity ratios decreased in recent years

1990

1991

1992

1993

Debt

166254

217290

95410

78853

Debt/Total Asset

0.0221

0.0303

0.0151

0.0112

Debt/Equity

0.0226

0.0312

0.0153

0.0113

Industry Averages

Upper

Median

Lower

CL/Equity

0.08

0.44

1.027

TL/Equity

0.288

1.034

1.864

1994

1995

1996

1997

1998

Debt

3568316

3432734

3029585

2517990

1770078

Debt/Total Asset

0.7192

0.6459

0.5502

0.4444

0.3103

CL/Equity

1.7

1.4

1.06

0.8

0.45

TL/Equity

2.56

1.82

1.22

0.8

0.45

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: Sub-Par

Capital is the overall financial strength of the based on financial performance and asset utilization. The following…