Could Silicon Valley Bank’s Failure Impact the Production of California Wines?

As has been widely reported, the failure of SVB Financial Group (NASDAQ: SIVB) may have a significant impact on venture capital (VC) and private equity firms and on the portfolio companies in which these firms have invested. According to various media reports, SIVB, known for having less stringent lending standards than money center banks, has done business with nearly half of all U.S. technology startups backed by VC firms.

Another business segment which could suffer is California’s wine industry. According to its website, SIVB has lent more than US$4 billion to wineries over the past 30 years. Indeed, loans to around 400 wine-centric clients comprised about 5% of its US$73.6 billion loan portfolio as of year-end 2022.

With their cash tied up at SIVB, many vineyards will face similar short-term challenges as many VC portfolio companies; paying workers and bills will be tough (albeit deposits are now expected to be fully backed by the FDIC, regardless of size). In addition, wineries may be unable to processing credit card payments to bring in much needed revenue for a time.

Longer term, an open question is will other lenders be able to step up to provide financing — financing that large banks would refuse to write — to vineyards with less than stellar balance sheets? If the answer to that question is “no,” California wine production could suffer.

SIVB seemed quite interested in providing favorable financing terms to wineries. It offered them low-interest rate loans, “seasonal lines of credit,” and “equipment loans and debt restructuring.” Even more telling, the head of SIVB’s wine division provided this quote to The Wall Street Journal in 2019:

“We’ll make real estate loans typically with a bit of a development period because you don’t have any cash flow generated by the vines for three to five years. The next biggest is inventory. Then there’s acquisitions and miscellaneous items. You might need to finance your French oak barrels.”      

Make no mistake: California wines are big business. The state’s ~4,800 wineries are responsible for 81% of all wine produced in the U.S., making California the world’s fourth biggest wine producer. (Italy is the biggest.) In terms of economics, California’s wine industry employs more than 500,000 workers who receive US$32 billion in wages. 

Information for this briefing was found via Edgar, FDIC, and the sources mentioned or linked. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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