We work as a Senior Lending Manager in the Corporate Lending Division of Grand Commercial Bank. We had a meeting today with the Chairman and the CEO of Australian Vintage Limited (AVL). During the meeting, we were told that AVL wishes to move all their banking to Grand Commercial Bank. They wish to borrow $70 million from Grand Commercial Bank as follows:

$50 million term loan (5-year term) to replace their existing loan facilities from their current bank (although their debt at their existing bank is more than $50m, the customers will repay the difference through their own capital raisings).

$10 million to purchase a new commercial property for showroom purposes (the property is valued at $20m, so the firm is contributing $20m of their own money to the purchase).

$5 million to purchase new wine-making equipment (the equipment costs $10m, so the firm is contributing $5m of their own money to the purchase).

$5 million overdraft facility.

In this Case Study, we are asked, as a potential lender to AVL, to take a much broader view. Central to this view will be an assessment of the risks that the proposed lending will expose the bank to-Your Approach to the Lending Deal

We are asked to take a positive approach to the borrower and its request for funding. This means that our decision to approve/decline this deal should be subject to real-life pressure from our employer to add a quality business to your portfolio. This point can be put another way. Almost every lending deal will inevitably have some positive features and some negative features. Your challenge in this assignment is to identify both the positives and negatives and to identify whether there are ways of structuring the deal that mitigate the negatives so that the deal in overall risk terms is acceptable to the bank. Of course, we have the option to decline the deal if you feel that it is not possible to structure the deal in a way that satisfactorily mitigates the major risks. Assume that all existing borrowings (including all loans, all equipment leases, and all other forms of bank borrowing) from their existing lenders will be repaid by AVL and will be replaced by the new $70m facilities at Grand Commercial Bank. Thus, AVL will no longer have any facilities with their existing bank.AVL has referred us to their website at https://www.australianvintage.com.au/investors/ where we can access their 2021 annual financial report (called AVL 4E and Financial Statements - 30 June 2021), which contains financial information for the past two years, which is a sufficient number of years for this assignment (use the consolidated financials). Their website also provides other background information on the company. Our task is to make a decision as to whether we would provide AVL with this funding and to present the decision up in the form of a lending submission.