Calistoga Vintner Services Gets $625,000 Loan to Live Another Day

Calistoga Vintner Services and associated companies are in bankruptcy, and the judge overseeing the case allowed them to borrow$625,000 to be repaid before the prime creditor JP Morgan Chase so the business can keep operating while the case goes on.

That's a good thing, at least for the wineries depending upon Calistoga Vintner Services to crush their grapes and process their wine.

“We’re out of money,” Davor Rukavina, a lawyer for the companies, said in court. “If we can’t pay our employees, our utilities, our vendors, the business stops. Our employees go, the business goes. We are in a de facto liquidation.”

At flush blush it proves, again, that St. Paul, William Shakespeare and Benjamin Franklin are all correct. Don't borrow money. I'll add a second: Don't trust banks. But how is a family business to grow?

Here's the situation, based upon Calistoga Currents' Tim Carl's reporting. The case involves two properties, one has two wineries and a tasting room. The other has a 2,099-acre ranch, just across the county line in Sonoma County.

The properties are owned by the Jorge Hernandez family, which bought the Calistoga property with a loan from First Republic Bank of San Francisco. According to the bankruptcy papers, First Republic had also agreed to lend more to create a “destination winery and hospitality campus,” once the companies reached $3 million in revenue – a mark reached just nine days before First Republic collapsed.

First Republic failed in 2023 after Fitch Ratings and S&P Global Ratings downgraded its credit rating, citing "a high proportion of uninsured deposits" from wealthy customers who are more likely to move their money elsewhere. S&P also noted First Republic had a loan-to-deposit ratio of 111%, meaning that it had lent out more money than it had in deposits from customers.

And, in fact, that's what happened – many of those deposits which weren't covered by FDIC insurance quickly moved from First Republic. The FDIC seized First Republic and ultimately sold it to Chase.

The original plan provided for 75% of Calistoga's revenue to come from hospitality. After Chase acquired First Republic, the hospitality money never came, and Hernandez said the winery could not earn enough to carry the debt.

Chase maintains it isn't the bad guy. There weren't any written documents committing First Republic to provide the hospitality money and the Hernandez business plan "is today a pipe dream."

“You haven’t heard the largest bank in America say that they’ll step up and fund a penny to keep this business going for its constituents,” Rukavina said.

Another hearing is set for Nov. 18 in Houston to determine whether the business will be liquidated.

Calistoga's attorney said the First Republic loans were intended merely as a first step, to buy the land and convert an existing plant to a winery.

“You haven’t heard the largest bank in America say that they’ll step up and fund a penny to keep this business going for its constituents,” Calistoga's attorney said.

Financing Options

There are several ways the companies might raise money:

• A possible long-term ground lease of part of the Calistoga property, at $800,000 to $1.2 million a year. The deal is said to depend on keeping the winery operating because the property's commercial and hospitality uses are tied to its operation.
• A neighbor has expressed interest in buying about 1,000 forested acres of the ranch for about $20.5 million.
• The properties have been listed for sale for about a year.