Copia’s $125-Million Crash

Copyright 2008, Lewis Perdue and Wine Industry Insight
Temporary home: http://wineindustryinsight.blogspot.com

[Please note: this is a summary and the first of a series on the Copia bankruptcy.]

The late Robert Mondavi’s dream of establishing a wine and food legacy in a depressed section of Napa, California, has turned into a $125 million financial debacle that could cost holders of California municipal bonds at least $50 million and/or push an already-bailed-out insurance company closer to the edge.

The collateral damage to Napa’s tourism industry and, especially, the adjacent Oxbow Public Market and its merchants has not yet been assessed.

Planned Sale Would Not Cover Municipal Bond Debt
According to Chapter 11 documents filed with the U.S. Bankruptcy Court in Santa Rosa, Copia: The American Center for Wine Food and the Arts, plans to sell its 12-acre campus and 80,000 square-foot building to a Los Angeles investment group for $28 million in cash, thus leaving most of the center’s $78 million in municipal bond debt to be covered by Maryland-based ACA Financial Guaranty Corp. which insures the bonds originally underwritten by the Bank of New York.

Bond Insurer on Shaky Grounds

ACA, itself, ran aground in December 2007 when Standard & Poor’s downgraded it from “A” to “CCC,” putting it into the “junk” category. ACA ran into trouble when it strayed from its original business of insuring municipal bonds and began underwriting credit default swaps: the primary culprit in the subprime mortgage meltdown.

$125 Million Total

According to the court filings, Copia’s $78 million in municipal bond debt is in addition to late Robert Mondavi’s $25 million donation and another $20 million raised through contributions. The filings also note that Copia owes approximately $1.3 million to 370 unsecured creditors and almost $200,000 in unpaid employee benefits.

$78 million + $25 million + $20 million + $1.5 million +200,000 = $124.7 million.

Jaroslovsky Grants “Super Priority” Consideration

Copia filed for Chapter 11 bankruptcy on Dec. 1. The next day, Copia appealed for “super priority” consideration of a plan to obtain $2 million for emergency operating funds.

Bankruptcy Judge Alan Jaroslovsky approved Copia’s request on December 2.

Charter Oak of Napa Loans $2 million

If Copia’s request is ultimately approved, Charter Oak Bank of Napa, has agreed to provide $2 million in “Debtor in Possession” financing. As security for its loan, Charter Oak would get a first deed of trust on Copia’s real estate, thus pre-empting the first deed of trust held by the Bank of New York.

Charter Oak’s loan would be interest-only for nine months at a rate of Wall Street Journal Prime + 2.0% floating with a 6% floor. The term sheet also specifies that the loan is contingent upon Copia having a “bona-fide” purchase agreement in place” for the property and buildings.

Los Angeles Firm Offers $28 Million

Copia filed an asset purchase agreement on Dec. 2 from a private equity firm, PSC Asset Management. The Los Angeles-based company has agreed to pay $28 million for the property.

ACA, Copia Swap Verbal Jabs

ACA Financial Guaranty opposed the financing and sale, calling it “an effort by Debtor’s management to attempt to profit by diverting assets from this failed nonprofit wine museum to a new ‘for profit’ enterprise to be run for the benefit of insiders.”

Copia responded that ACA and the Bank of New York had precipitated the crisis by refusing to negotiate a work out of the loans. The negotiations failed, according to a Copia document, because “of the same paralytic ‘c.y.a.’ [cover your ass] Wall Street denial and fear that is crippling our national economy.”

SEE UPDATE: JUDGE DENIES COPIA EMERGENCY REQUEST, MAY FOLD.