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From: lewis.perdue@wineindustryinsight.com

Subject: Copia Muni Bond Scandal, Carneros Creek & Windhurst Sold, French Wine Terrorists Target Imports

Date: 2009-03-17 12:06:56

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WINE INDUSTRY INSIGHT

EMAIL EDITION - VOLUME I, NUMBER 75 - MARCH 16, 2009


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IN THIS ISSUE:

  • Copia Bankruptcy: The Tip Of A Muni Bond Scandal? Part 1

  • How Did An Insolvent Copia Get A $78 Million Muni Bond Loan? Part 2 In A Series

  • Carneros Creek, Wildhurst Sold

  • French ‘wine terrorists’ attack merchants selling foreign produce



Copia Bankruptcy: The Tip Of A Muni Bond Scandal? Part 1

Copia visitor pays his respect to a lost dream.

Copia visitor pays his respect to a lost dream.

REVERENCE AND PERPLEXITY

Copia is dead.

But still they come.

Long live Copia.

On a sunny March Napa Sunday, the faithful come  in Fords and Jaguars, Hondas, pick-ups and Priuses.

Back home, some of the mourners have walk-in wine cellars, others a couple of bottles of Two Buck Chuck on the kitchen counter.

ROBERT MONDAVI: ROCK-STAR FAME

Despite their differences, pilgrims approach the locked and chained doors of Copia’s stark edifice united in a hushed respect for the late Robert Mondavi — the only vintner ever to have achieved rock-star fame and a cult-like adoration.

A trim older man in a leather jacket looks through the window at the darkened space beyond.

He shakes his head and moves on to the stone bas-relief of Copia’s logo embedded in the wall.

WHAT WENT WRONG?

“What went wrong?” He asks no one. “It seemed like such a natural.”

Then he reaches up reverently runs his fingertips over the carved stone.  His touch is familiar.

Think: St. Peter’s Basilica. See the queues of the faithful. Visualize their hands outstretched, reaching for the toes of the Fisherman.

ROBERT MONDAVI’S ULTIMATE DREAM

Before it closed its doors in late November 2008, Copia: The American Center for Wine, Food and the Arts represented the culmination of Robert Mondavi’s lifelong dream to marry what mattered most to him in life: wine, food, and art.

Mondavi bought the land for Copia, in 1996, contributed the first $25 million toward its construction and lived long enough to see its towering, 80,000-square-foot stone, polished concrete, metal building become a monument to  his dream.

Then wine icon Robert Mondavi died in May 2008. When Copia died six months later, the monument became the dream’s mausoleum.

Now, some in legal circles believe the huge gleaming edifice represents the tip of a municipal bond scandal that may have brought the worst of Wall Street to Main Street.

COPIA AND THE SUB-PRIME MUNICIPAL BONDS

Copia, it turns out, fell victim to the same combination of irrational exuberance and lenders willing to look the other way that ignited the current recession. The difference here is that Copia’s sub-prime funding came from $78 million in municipal bonds underwritten by a bank, bond attorneys and a bond underwriter that all knew Copia was insolvent when the loan was made.

STRAIGHT-FORWARD LIQUIDATION SEEMED INEVITABLE AT FIRST

When Copia filed for bankruptcy on December 1, 2008, the equation seemed pretty straightforward: They were more than $79 million in debt and had assets worth $33 million by the most optimistically generous estimates.

Although no real estate appraisal has been submitted to the bankruptcy court, various estimates of the value of all of Copia’s assets (mostly real estate) have ranged from $20 to $33 million.

And while some of the Copia management briefly promoted a reorganization plan, the operation was clearly too far under water for the bankruptcy court to take it seriously.

Add this to approximately $45 million  in donations (at least half of which came from Robert Mondavi) and Copia was a $124 million implosion — a financial crater that has rocked this mostly middle-class city of 124,000 at the southern end of Napa Valley.

More significantly, the implosion derailed Napa’s efforts to climb the wine country social ladder and find a place among such upscale hamlets as Yountville and St. Helena.

LIQUIDATION QUICKLY DISPLACES HOPES OF REORGANIZATION

By the middle of December, 2008, the financial outlook made it clear that a Chapter 11 reorganization would never work. Regardless of how much money might be generated by a reorganized operation, the $77.6 million in municipal bond debt remained an insurmountable barricade.

As reported in Wine Industry Insight, Copia’s board of directors and attorney John MacConaghy, then prepared a liquidation plan which called for the foreclosure on the property by deedholders bank of New York Mellon (BONYM) and the bond insurer, ACA Financial Guaranty Corporation.

In exchange for a mutual release from legal claims, ACA and BONYM agreed to a “carve out” which would provide $465,349 “as a gesture of goodwill to the local community to ensure payment of priority wage and employee benefit and consumer deposit claims and the costs of an orderly wind-down of the debtor.”

The disclosure statement estimates that unsecured creditors would also get about five cents on the dollar for their claims.

CLAIMS TRADER RAISES ISSUES OF MUNI BOND IRREGULARITIES

When Copia filed its disclosure statement outlining the carve-out settlement with BONYM and ACA, the documents were followed immediately by a vigorous objection from San Francisco Attorney William McGrane and a “claims trading” entity he helped form –  and represents — Copia Claims LLC.

In the same way that credit card debt, mortgages and other indebtedness can legally be bought and sold, claims traders purchase an existing claim from an unsecured creditor of a party in bankruptcy proceedings. That allows the claims trader to step into the shoes of the former claimant and participate in the proceedings.

Typically, claims traders buy into a bankruptcy when they believe they can bring a contingency fee legal action that offers good prospects for victory. The potential litigation is treated as an asset.

Bankruptcy  courts sometimes approve a claims trader’s plan and will allow it to create an alternate plan of reorganization if the judge believes the litigation has a likelihood of success and if that success offers a substantial improvement in returns to creditors.

SUB-PRIME FINANCE COUNTENANCED BY ALL INVOLVED

McGrane’s intervention in the bankruptcy proceedings (termed “unhelpful meddling” by Copia’s attorney John MacConaghy) has — at the very least — cast a harsh glare on the issue of a large investment bank, a bond insurer and a prominent bond law firm who went ahead with a $78-million-dollar municipal bond offering for an already- insolvent Copia.

More about the sub-prime bond fiasco in Part 2 of this series.

FRAUDULENT TRANSFER IN A “BOTCHED” REFINANCING?

But McGrane’s arguments on behalf of claims trader Copia Claims LLC are not concerned primarily with the folly of sub-prime finance. Instead, McGrane argues that a “fraudulent transfer” occurred when Copia refinanced its 1999 municipal bonds in 2007.

According to McGrane’s statements in open court and the Copia Claims filings on record, the refi process never actually paid off the 1999 debt. The botched process, the filings assert, happened because the bond attorneys — Orrick, Herrington & Sutcliffe of San Francisco — were concerned about their role in financing an insolvent borrower and tried to “cover their ass” with an opinion letter that fell short of what was legally required.

This, according to McGrane, has left Copia still liable for both sets of bonds.  In addition, his legal filings contend that 2007 bond holders are currently unrepresented in the bankruptcy court proceedings which is considering distributions of their funds in a proposed liquidation.

Regardless of whether Judge Alan Jaroslovsky approves Copia Claim’s requests to intervene in the bankruptcy process, the allegations of fraudulent transfer will certainly need a court to resolve them.

More about the refinancing woes in Part 3 of this series.


How Did An Insolvent Copia Get A $78 Million Muni Bond Loan? Part 2 In A Series

Robert Mondavi was a man of large ideas and grand initiatives. His dreams propelled him to greatness and created for him a home in the hearts of millions.

But big and grand also brought him down, and with him, the winery that bore his name.

And Copia.

Despite his personal gifts to Copia totaling some $25 million and another $20 million from his friends, associates and admirers, the act of giving birth to Copia, building its monumental building and grounds ultimately required many more millions and that led to the Copia Muni Bond Scandal.

The full text (1,414 words) of this article is available here to subscribers of the VIP Content Center.

Click here for subscription information.

IN THIS VIP CENTER ARTICLE:

  • COPIA AND ITS MUNI BONDS: SCANDAL OR EUPHORIA?
  • INVESTORS BUY INSOLVENT COPIA BONDS DESPITE WARNINGS
  • IRS KILLS EFFORT TO REVERSE DECLINE
  • WITHOUT THE 2007 BONDS, COPIA WOULD HAVE DEFAULTED ON THE 1999 BONDS
  • WHISTLING PAST THE MUNI BOND GRAVEYARD - WILL INSURER ACA SURVIVE OR WILL CALIFORNIA TAXPAYERS GET THE BIG BILL?
  • WAS IT WRONG TO GIVE AN INSOLVENT BORROWER $78 MILLION?

Next, In Part 3: The “Botched” Refinance, Charges of Fraudulent Transfer, the Fudged Legal Letter


Carneros Creek, Wildhurst Sold

Tennessee-based Sapphire wines — best known in California as the owners of Eos Estate Winery on the Central Coast — has purchased the Carneros Creek and  Wildhurst wine brands, according to an article in the Nashville Tennessean.

According to the Tennessean:

“I think that in today’s market place there are a lot of opportunities out there,” Sapphire CEO Jeff Hopmayer said. “Sapphire is well positioned to seize on those opportunities. The wine business and where we’re at is growing.”

Hopmayer declined to say how much Sapphire paid for the wineries. He said the company is looking to purchase another wine brand in northern California.
Hopmayer said Sapphire’s sales in February were 100 percent above sales in Feb. 2007.

 


French ‘wine terrorists’ attack merchants selling foreign produce

The London Telegraph is reporting that a shadowy group of French “wine terrorists” have launched a campaign of attacks on merchants selling foreign produce in southwestern France.

French police are searching for members of the group which poured more than one million bottles worth of red, white and rosé down the drain in their third commando-style attack in three weeks.

“In a predawn raid, the wine activists broke into the vignerons des Garrigues, a wine co-operative group in Nimes, pulled out the plugs from eight huge vats and emptied 11,000 hectolitres – the equivalent of 1.2 million bottles – of wine into the premises, from where it seeped out into an adjacent river.”

Wine terrorists: French 'wine terrorists' attack merchants selling foreign produce
Wine terrorists: CRAV stands for Le Comité Régional d’Action Viticole (Regional Committee for Viticultural Action), a group known to hijack tankers of foreign wine and dynamite government buildings or supermarkets.

They oppose merchants who bring in foreign wine from Spain or Italy and accuse them of cutting prices to unreasonably low levels

“French police are searching for members of the group which poured more than one million bottles worth of red, white and rosé down the drain in their third commando-style attack in three weeks.

“In a predawn raid, the wine activists broke into the vignerons des Garrigues, a wine co-operative group in Nimes, pulled out the plugs from eight huge vats and emptied 11,000 hectolitres – the equivalent of 1.2 million bottles – of wine into the premises, from where it seeped out into an adjacent river.

“In a predawn raid, the wine activists broke into the vignerons des Garrigues, a wine co-operative group in Nimes, pulled out the plugs from eight huge vats and emptied 11,000 hectolitres – the equivalent of 1.2 million bottles – of wine into the premises, from where it seeped out into an adjacent river.”

Read the rest of the article.



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Lewis Perdue
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Phone: 707-326-4503, fax: 707-940-4146
Email: lewis.perdue@wineindustryinsight.com