Tuesday, April 21, 2009

Stressed Vines & Banks

We were hit by a heat wave this week with the mercury topping 95 degrees. The good news: I don't have to spray because temperatures that high will set any mildew fungus back. And, because we irrigated last Friday to apply the AdmirePro chemical against the disease-carrying sharpshooters, there was moisture in the ground and the vines raced upwards, some of them clearing the top wire. Still, with temperatures that hot this early in the season I went out at dawn to inspect which vines had passed the stress test. At the bottom of the vineyard where the soil is more fertile and the temperatures somewhat cooler the tendrils of the growing vines point to the sky. Boy do they look great. But as I climb higher up the hill I notice some tired tendrils, their arms only parallel to the ground or drooping. Stressed vines and perhaps in need of water next weekend.

I ripped out my first zombie vine on Sunday. It was diseased and not functioning properly and it had to go. I replanted a new vine in its place. With thoughts of zombie vines and stressed vines in my head, as I walked through the vineyard I imagined the upcoming conversation with my banker who is deciding the fate of our business. We've been incorporated over 11 years and have had a line of credit with the bank for 11 years and we pay our bills and have a FICO score of 800. The bank has suggested via letter that we pay back the line of credit. Now. And, they haven't been responsive to my idea of a creative bank swap: cash for wine.

I'm filling out the application to renew the line of credit and sign a personal guarantee. There are questions about my assets. "What should I put down for my house value?"

"How much did you pay for it?" my personal banker asks.

"$750,000 -- then we put in improvements and the vineyard worth more than $80K so the house is worth $830,000."

"Hold on," he says and goes to a computer screen, types in my zip code, square footage and frowns. "According to the computer, your house is only worth $495,000. You're underwater."

"Can't be," I respond. "Your computer looks at all houses in the zip code, not just the houses in Blue-Merle Country." He scowls and finally decides to write-down the value 35% which still puts us underwater. (So much for my equity helping me out renew the line of credit.)

"How much did your business earn last year?" he asks.

"We broke even. But as you know, I took what expenses I could to reduce taxable income from my daytime job." More frowns. Then I had an idea. "Why don't you let me calculate my assets and income the same way banks do?"

"What do you mean?" he asked.

"I mean, let me use the same accounting principles approved by the Financial Accounting Standards Board."

"Go on."

"Well, using the same methods approved by the FASB for banks my house is worth $830,000, which means I have equity many times over to pay back your line of credit. According to FASB rules for banks, I can value my assets at their fair value, as I determine it, just like you guys. As houses in my neighborhood sold for over $1 million three years ago, and as I have invested at least $830,000 in our house and vineyard, then it's worth at least $830K, right?" He nodded. "And don't forget the ocean view," I added. He was beginning to warm up, and at that point, I pulled out my secret weapon: a sample from the barrel that had popped its bung last night to let him taste a bit of what the bank was allowing us to produce. The 2008 "Merleatage" a blend of Petit Verdot, Cabernet Franc and Malbec. After the third sip, he began to loosen up. "This is good," he said.

"I told you it was good. It gets better. Let me give you," I suggested, "A statement of my earnings for Q1 this year using the new accounting principles."

"What do you have in mind."

"Do you remember the 47 palm trees my wife purchased last year?" He nodded. "A phoenix canarius palm sold for $10,000 two years ago. We have 47 of them. That's a future asset value of $470,000. " I poured him another two ounces of wine and continued. "We paid $49 each for those trees. So, our profit is $467,697 from that transaction alone, enough to pay back your line of credit ten times. It shows in my Q1 income statement and you'll have no problem getting my loan approved."

He thought for a minute and I poured him another taste and he said, "You know, I'm thinking we should increase your line of credit instead of canceling it."

"Now you're talking."

At that point the branch manager comes in, sees the bottle of Blue-Merle wine on the table and calls the subordinate into his office. I realize the gig is up and prepare for the worst, log onto Twitter on my iPhone and type: "Attention wine lovers. XX Bank forecloses vineyard & kicks out dog. Withdraw your money on Friday. Thanks from @bluemerlewinery " I have this message prepared to send if they attempt to foreclose. The tweet heard round the world, when the people punished the banks!

I realize I've spent another hour in the vineyard and it's time to stop pulling shoots and get to my daytime job where the real life banker calls to say they've decided to convert the line of credit to a 4-year fixed at a low interest rate. This is good news--neither my vines nor banker are zombies--and I'm bottling up wine this evening to drop off at the bank as a thank you gift and to plant the seeds so they'll be there to finance us when we're ready to take on The French!


Vinogirl said...

Great post.
96 degrees here on Tuesday and I am in a cool part of Napa. 66 today.
That 'Merletage' sounds fab!

Craig Justice said...

Hey Vinogirl: The "Merletage" is more fab than cab! It's so good, it gets you bank loans!