Wineries and whiskey makers tap private credit for financing
Wineries, booze distributors and distilleries are turning to private credit for financing, especially as tariffs and a decline in drinking habits bring more risk to the alcohol industry.
A direct lending partnership between Wells Fargo & Co. and Centerbridge Partners has provided several loans to beverage distributors in recent months, including Hand Family Cos. and Southern Crown Partners.
Earlier this year, Ares Management Corp.-backed wine club and restaurant chain Cooper’s Hawk Winery & Restaurants was looking to tap private credit to refinance its debt.
“We’ve seen deals that range from the largest wineries, that you see in every supermarket at cheap price points for the past 40 years, to higher-end single labels with business models that focus more on scarcity and exclusivity effect,” said PGIM Private Capital’s head of direct lending, Matthew Harvey.
Deals in the space have taken a variety of forms, including traditional corporate lending and asset-backed financing. For more standard transactions, private credit firms have generally eyed businesses with good customer retention. In the case of Cooper’s Hawk, the chain offers monthly memberships, which require customers to pick up wine orders in-person at one of their restaurants.
For private asset-backed deals, lenders can designate barrels of whiskey and bourbon, or vineyards, as collateral. These transactions involve “lending against something that is monetizable,” such as wine itself or land, according to Harvey.
Barrels of bourbon can be particularly attractive assets, since their values appreciate over time as the spirit ages. In March, InvestBev Group’s credit arm provided as much as $50 million to contract distiller Lofted Custom Spirits, backed by aging barrel inventory, according to a statement.
Private lenders can strike deals with businesses that regulated banks can’t always back, such as cannabis farms or casinos. However, they do have to answer to their investors, who often don’t like lending to morally questionable businesses, market participants said.
With fewer people drinking, alcohol sales dipping and tariffs threatening to upend imports, private credit lenders are also taking on more risk with these sorts of deals. Distilleries, wine clubs and distributors are particularly prone to consumer spending, and some have ended up in bankruptcy.
“We’ve got this weird time in the world where there is a lot of indecision – you have tariffs, you have GLP-1s, you’ve got this quasi-legal state of cannabis beverages,” said Brian Rosen, founder of InvestBev, which also provides private equity.
Rosen said he sees returns as high as 30% on private credit deals for an alcohol-related business, given the specialization needed.
“The banks look at all of that and they say the credit risk is too high, and that’s where we are happy to step in,” he said.
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Some banks have been over-concentrated in the beverage space for some time, market participants said. That’s not to say they’ve moved out of the sector altogether: For Hand Family and Southern Crown, Wells Fargo provided revolving credit facilities alongside the direct lending partnership.
But with a decline in consumption and tariffs, companies may be in more need of capital, which private credit firms can provide.
Some public alcohol companies are already feeling a squeeze. Molson Coors Beverage Co., which owns various beer brands, recently lowered its full-year guidance for the second quarter in a row, citing continued pressure from a weak consumer and falling U.S. market share.
“Alcohol is definitely at a point of inflection,” said Ranesh Ramanathan, partner at Akin Gump Strauss Hauer & Feld. “Tariffs are a big hit to them, and the margins are already pretty tight.”
“Sales have gone down as discretionary spending has gone down,” he said. “However, if you think back to COVID or 2008, the industry remained resilient throughout economic downturns.”
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However, a number of traditional lenders still have hangovers from recent losses in the industry.
Uncle Nearest, a Tennessee-based whiskey brand, was recently placed into receivership after defaulting on $108 million of loans. Luca Mariano Distillery, based in Kentucky, and Stoli Group U.S.A, which owns bourbon brand Kentucky Owl, have both filed for bankruptcy in the past year, according to court filings. Another distiller, Garrard County Distilling, has been placed into receivership.
In the event of bankruptcy, these businesses can require narrowed expertise – and a liquor license – to take over compared to those in other industries. Not every lender has that capability.
InvestBev’s Rosen said having knowledge and experience in the spirits industry is essential – if he needs to liquidate an asset, he can call up retailers in the market.
“If you don’t know how to liquidate the assets, or you aren’t willing to take over the business, it’s going to be a problem,” said Kevin Griffin, managing partner and chief executive officer of MGG Investment Group. In 2023, MGG acquired Spring Mountain, a Napa Valley vineyard, out of bankruptcy.