California's Legacy Estates Group, owner of Freemark Abbey, Arrowood and Byron wineries, has filed for Chapter 11 bankruptcy. A preliminary hearing on the case, which was filed on Nov. 18, was held this morning in the U.S. Bankruptcy Court in Santa Rosa.
The move comes just eight months after Napa-based Legacy Estates paid $40 million to obtain Arrowood and Byron from Constellation Brands, which had acquired the two wineries in its December 2004 purchase of the Robert Mondavi Corp. Legacy bought Freemark Abbey, which is located in the Napa Valley town of St. Helena, in 2001.
According to Legacy CFO Dave Henriksen, the company needs time to restructure the financing for the Arrowood and Byron purchases. "It was just very difficult, egregious terms in the original lending agreement," he said. In order to get the financing they needed on short notice to complete the deal with Constellation, Legacy had to turn to Laminar Direct Capital LP, a Houston-based hedge fund. Henriksen said that although sales of the wines are going well, the integration of the companies did not happen as smoothly as planned, causing them to default on their payments. "There wasn't any time in that agreement for any kind of hiccup."
Once Laminar began proceedings to sell Legacy Estates assets to recoup its investment, the Chapter 11 filing was necessary, said Henriksen, who added that day-to-day operations at the wineries will continue as normal. There are also no plans at present to sell any of its properties. "We're just working to refinance with traditional financing," he explained.
Legacy Estates' principal partners, brothers Calvin and Dev Sidhu, met with some of the Arrowood staff on Monday. "The difficulty is that we have growers out there who won't be paid for a while," said director of winemaking Richard Arrowood, who founded the Arrowood brand with his wife, Alis, in 1987. "Calvin said that they intend to pay every grower, every supplier, every vendor 100 cents on the dollar. So I'll take him on his word."
Arrowood, located in Glen Ellen, currently makes about 30,000 cases a year, primarily with purchased Sonoma County grapes. About one-third of the production is Cabernet Sauvignon, with the balance mostly Chardonnay, Syrah and Merlot.
Byron makes about 35,000 cases a year, nearly all of which is Pinot Noir and Chardonnay made from its 380-acre property in the Santa Maria Valley. "I was a bit surprised," said Byron winemaker Jonathan Nagy of the bankruptcy announcement. "What I've been told is it's business as usual until everything is straightened out."
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