Last-minute agreement puts cork in Deerfield bankruptcy

A last-minute agreement between Deerfield Ranch Winery and its lender Rabobank delayed the foreclosure of the Kenwood winery, at least until the end of March. “It went very well,” said Deerfield spokesman Addison Rex, speaking of a mid-week court hearing. “We’re off to a good start.”

The 47-acre winery is located in an idyllic setting – buffleheads and mallards paddle in the wetlands pond just a few yards off Highway 12, trellis-trained vines are lined up in ready rows, a crush pad sits waiting for next year’s harvest. But the future of the promising Sonoma Valley winery turned into a nightmare with the announcement late last week that Deerfield had filed for Chapter 11 bankruptcy protection, facing foreclosure over failure to meet a quarter-million dollar payment on time.

The press announcement from Deerfield Ranch said it “had challenges with their lender, Rabobank, for many years” after entering a seven-year loan in 2008 to cover $11 million in costs. But requests for unexpected balloon payments from 2010 on shook the family business, whose public opening had been delayed following the protracted – and expensive – construction of a left-hand turn lane required by Caltrans engineers.

That project was expected to cost about $300,000 and take six months; it cost $1.7 million over five years, due to unexpected issues with improperly located utility lines, and by the time it was completed the Great Recession had set in and the wine-buying public wasn’t flocking to the Valley like it used to. “The loss of three years tasting room revenue was the real cost of the delay of the left turn lane,” said Rex, the winery’s operations manager.

Prior to a Thursday morning bankruptcy court hearing, however, Deerfield and Rabobank reached a “cash/collateral” agreement that allows the winery to continue operations until the end of March, when a reorganization plan is due. “We’re happy to be where we are,” said Rex, nephew of founders Robert and PJ Rex. “We’ve got a good relationship with Rabobank now.”

The winery produces 15,000 cases of its own branded wine annually, as well as a like amount for custom-crush customers. Deerfield prides itself on being a certified organic producer with sustainable agricultural practices and an onsite bioreactor to recycle 98 percent of its wastewater. It also has restored 14 acres of wetland on the property, which they say is “home of the endangered Kenwood Marsh checkerbloom flower.”

The traffic lane was only one of the costs that Deerfield faced, and compared to the $15.9 million spent on winery construction, including an elaborate system of storage caves and underground tasting room, it was far from the largest. An ambitious winery building, designed to resemble a National Parks lodge, is still $10 million away from completion.

Still, Deerfield maintains it’s not their ambition but the bank’s loan that led to the Chapter 11 filing. “A key part of the story is that the reviewing accounting firm, Moss Adams, also missed the annual balloon payments,” said the younger Rex. “It began as a misunderstanding of the terms. Instead of working with us Rabobank placed us in ‘special assets,’ at which point they were unwilling to work with us to write a note with reasonable terms.”

Rabobank is a relatively new institution in the North Bay, with a focus on agricultural lending. The Netherlands-headquartered bank has had its share of troubles as well, including a 2013 scandal in Europe for unscrupulous trading practices that resulted in a $1 billion fine and the resignation of its chief executive.

“It takes a huge investment to run a winery,” said David Cook of CVM Grapes, a vineyard management company – and currently mayor of Sonoma. “It’s kind of like restaurants, a lot of them go belly up in the first year. I think there’s a lot more wineries than we hear about who just give up.”

Among the creditors Deerfield faces in its bankruptcy are the County of Sonoma for back property taxes, a number of local grape growers who supplied fruit to the winery, and the bank itself.

While he doesn’t have any clients who are major suppliers of fruit to the Kenwood winery, Cook admits he has some growers who have lost money when wineries couldn’t pay. About Deerfield, he adds, “Rumors have been flying for years. It’s a shame, they make such great wines, and we all like family wineries in Sonoma.”

Don’t give up on Deerfield yet, is the message from co-owner and head winemaker Robert Rex. “We fully intend to repay all our creditors in full, and operations will continue uninterrupted during this process. Our future looks bright and we look forward to strengthening our winery.”