Wines & Vines

Giving credit where credit is due

Giving credit where credit is due – wine industry financing

Jean Deitz Sexton

When Tim Murphy and Dale Goode went in search of financing to build their winery in 1986, they had two distinct advantages: a 20-year reputation for growing some of the best grapes in the business and a willing lender in Pacific Coast Farm Credit.

Since the early 1970s Murphy had enjoyed a business relationship with Pacific Coast Farm Credit, the California branch of the venerable lending institution whose sole mission is to financially support American agriculture.

At the time Murphy and his wife Doreen had decided to make their home and raise their family in Sonoma County’s Alexander Valley, an ethereally beautiful wine region marked by rolling hills and silver-fog laden mornings. They settled in on a 20-acre homestead Murphy bought in 1967. A UC-Davis graduate with a degree in animal science, Murphy had previously operated a successful retail meat market in Berkeley.

Murphy paid cash for those first 20 acres; he and Doreen still live on the original property. Two years later he added to his holdings, buying the Highway 128 parcel on which the Murphy-Goode winery now sits.

From the beginning the Murphy-Goode collaboration was a charmed one, viticulturally and financially. Originally, Murphy’s 20 acres contained prunes and “a little bit of vineyards,” says Murphy. Eventually, he and his partner, Dale Goode, converted the parcels to full grape production, planting what were to become prized Chardonnay and Sauvignon blanc varietals.

When Murphy went to Pacific Coast Farm Credit to establish a lending relationship he already had the hallmark of an ideal credit applicant. He came with his own collateral, 20 acres of debt-free prime California vineyards. He knew something about grape growing. And he was in the vineyard business for the long haul.

Good fortune gave Murphy premium grapes; his own sound fiscal policy gave him good credit. “Everything we took in we plowed back into the business. We never took a large profit. We were always debt reducing, paying off our loans early,” says Murphy.

From the early ’70s to the present, Pacific Coast Farm Credit has been Murphy-Goode’s only lender. The two organizations have grown together: Murphy now owns 350 acres in the Alexander Valley. In Sonoma county, Pacific Coast Farm Credit was housed in a small office Murphy used to visit on Steele Lane in Santa Rosa; now it has its own formal office building in Windsor.

By the time Murphy and Dale Goode thought about expanding their operation to a full-fledged winery, they had a solid credit rating with Pacific Coast Farm Credit and years of successfully fighting the vagaries of grape growing. Would-be vintners can learn much from their experience, according to Pacific Coast Farm Credit.

For one thing, the Murphy-Goode wine label began with a huge competitive edge: their own grapes. Wineries starting from scratch need to think ten years down the line; that’s how long it will take for them to realize any profit, says Pacific Coast vice president Bill Rodda, who specializes in vineyard and winery financing.

“Someone brand new to the business is a concern. Even corporations who want to get into the business face challenges. Coca-Cola failed because it did not realize the complexities of the wine business. If someone is new we want to see them surrounding themselves with vineyard, production and marketing expertise,” Rodda says.

Doctors, lawyers and CEOs who decide to dabble in viticulture often get out after a few years. “They need a tremendous amount of capital behind them,” notes Terry Lindley, Pacific Coast Farm Credit’s vice president of marketing. “Usually, they greatly underestimate the amount of capital required and the challenges of marketing.”

Building up a label’s brand equity takes years. Murphy-Goode was able to leverage its reputation for growing excellent ultra-premium grapes. For someone starting out in 1996 the game is even tougher. “The biggest financial challenge is for wineries to locate enough product, due to the grape shortage,” Lindley says. Many wineries are not lucky enough to be their own captive supplier, in the manner of Murphy-Goode. Finding grapes in a hot market now is a challenge for all wineries, new or established.

The hot wine market has also changed the current financial climate. Right now, the “sunshine lenders” are back in the business, says Lindley. They are the commercial lenders who fade in and out depending on the health of the market.

“Presently the money supply is pretty good in the industry. Lenders have dollars and they are pretty aggressive.”

But when the party’s over and the market cools off, the sunshine lenders will leave. Pacific Coast Farm Credit, on the other hand, dances with the one who brought them. The mission of Pacific Coast Farm Credit is to financially back agriculture, good times and bad. “When things get tough again we’ll be here,” says Rodda. “We also offer competitive rates so we keep the commercial banks honest.”

While Pacific Coast has a particular affinity for agriculture, it doesn’t mean its wallet is open to all comers. “We certainly are a more approachable lender but just as stringent,” says Lindley. “We see ourselves as long term partners with agriculture so we have to be structured pretty conservatively.”

The organization does its due diligence on all credit applicants and has seasoned personnel handling accounts. Some of them, such as Rodda, come from the commercial lending business.

“Deals vary,” Lindley says, depending on the applicant’s capital needs and where they are in the winery life cycle.

Murphy-Goode is a representative example. Pacific Coast has helped them finance the land, vineyard development, winery construction and a 30,000 square-foot barrel storage facility, the Beagley Building (named after Tim Murphy’s beloved dog who “passed on to the eternal land of beloved pets”) which was just completed September 1.


As of 9/30/96


Commodity Total

Wine grapes 46.9%

Vegetables 17.2%

Dairy 5.3%

Forest products 6.2%

Beef 4.6%

Fruit 7.2%

Other 12.6%


Source: Pacific Coast Farm Credit Services, ACA-October 8, 1996

Pacific Coast is a lottery player’s idea of heaven, an endless supply of money always readily available to the right applicant. This unique characteristic is due to Pacific Coast’s money source. It floats bonds to finance what is now a $1 billion accumulated portfolio.

“Money supply is never an issue,” says Rodda. “We are self-funded.” The organization is able to float bonds since it functions as a government-sponsored entity, having its origins in the Federal Farm Loan Act of 1916. Today, Pacific Coast is part of a national network of agriculture lenders that includes 250 local Farm Credit lending associations. The Pacific Coast branch serves an enormous territory extending from Oregon to California’s Monterey County.

To reinforce the long-term relationships it seeks, Pacific Coast functions, to some degree, as a cooperative, requiring new credit clients to invest $1,000 in the organization. “We see ourselves as a cooperative, working together with our ag clients,” explains Rodda.

Of Pacific Coast’s $1 billion portfolio, slightly less than 50 percent is comprised of winery and vineyard accounts; vegetables make up the next largest share, at 17%.

California and Oregon’s thriving wine industries have fueled the percentage growth; not that many years ago prunes and apples were a bigger part of the lending picture.

Although many of the Pacific Coast wine regions are pretty tapped out in available good vineyard land, both the lender and client, Tim Murphy, see expansion in the future.

“The ultra-premium, smaller wineries will continue to thrive,” says Lindley.

After 30 years in the wine business, Tim Murphy still believes “there will always be opportunities for new wineries.” There’s a lot of wineries out there but there’s room for more.

“Smaller wineries – De Lorimier, Rochioli, Rafanelli – are all doing well. Opportunities in the ultra-premium market will continue,” says Murphy.

For Murphy the next generation has already been spawned; his sons, Jim, Dennis and T.J., are active partners in the winery, working in vineyard management. The family retains ownership of the land and leases it back to the winery. Marketing is handled by winery partner Dave Ready, whom Murphy credits with having the skill to establish a strong brand presence early on for the winery.

Money can’t buy happiness, but it did buy Murphy his first debt-free 20 acres. On a lovely Alexander Valley evening, he enjoys a glass of red wine with a good cigar on his deck. Murphy likes to tell you the late Andre Tchelistcheff was an avid cigar smoker. “Doesn’t interfere with the palate at all,” Murphy says. He can taste Sauvignon blanc through the smoke. Now, that’s the kind of guy you lend money to.


(in 000s)

Loan Volume 9/30/96 9/30/95


accrual $412,022 $348,450


accrual 174,781 157,558


non-accrual 1,315 2,636


non-accrual 1,286 11,753


Mac Loans 6,973 11,242

$596,377 $531,639

Source: Pacific Coast Farm Credit Services, ACA-October 8, 1996

COPYRIGHT 1996 Hiaring Company

COPYRIGHT 2004 Gale Group