Default by borrower
There is always a concern that the borrower may default and be unable to repay the loan in whole or part. It is for this reason that loans are arranged at 35% LTV, ownership of the wine is transferred to the lender and the wine is physically held by Bordeaux Cellars as Custodian for the term of the loan.
If a default then arises the lender may choose to take wine to the value owed, or have Bordeaux Cellars sell wine in the secondary market and repay the loan, any outstanding interest and costs from the proceeds. Any surplus wine is then returned to the borrower.
Liquidity of the Asset
Fine wine is highly realisable. There is a global secondary market estimated at $6-$8 billion in 2017. Wine can be sold the same day to brokers and merchants all over the world and now directly to collectors and investors through online fine wine exchanges.
As loans are structured at 35% LTV it should always be possible to sell the wine quickly in the secondary market at prices in excess of the loan outstanding.
Security of the Asset
Bordeaux Cellars' staff have many years’ experience handling rare and valuable wines.
We only store wine at world class, specialist facilities. They provide first rate security and the perfect conditions in which to store wine. In addition, all wine in our custody is insured at full-replacement value.
Wine shows a level of price volatility and is unsuited to short-term investment. This was illustrated by substantial price corrections in 2008 and 2011. For this reason, when we broker loans against wine we use a conservative 35% LTV to protect the lender from exposure to price fluctuations over one year.
Wine is better considered as a medium to long-term investment. Over the longer-term it has shown favourable returns compared to equities and commodities.
Bordeaux Cellars are accredited members of
WineFraud.com, the wine industry’s anti-counterfeiting trade association. The training conferences and regular updates they provide through their website assist us to ensure that we are abreast of all the latest developments in wine fraud. Based on that information we take measures to ensure that the wine we trade in, and broker loans against, is genuine.
This risk is mitigated by the fact that the team at Bordeaux Cellars have years of experience identifying, valuing and dealing in wine.
In the event that we were to sell, or arrange a loan against, counterfeit wine, Bordeaux Cellars will reimburse our customer for the full purchase price or make good any shortfall in the value of the security.
Insolvency of Bordeaux Cellars
All wine in our custody is held in individual vaults. The wine in each vault is identified as belonging to a particular client, is labelled and security tagged as such, and these details are recorded in our customer database.
As such each bottle or case of wine is identifiable as belonging to a particular client and would not be available to the creditors of Bordeaux Cellars if the company were to go into administration or be liquidated.