By Henry Dubroff Friday, August 10th, 2012

When an economy is shifting gears, strange events are likely to take place.

Those words of wisdom came to me decades ago courtesy of Eugene Berman, a bankruptcy attorney in Springfield, Mass. But they seem to ring true as far as a pair of high-profile bankruptcies are concerned.

For legendary pinot noir pioneer Richard Sanford, who took Alma Rosa Winery & Vineyards in Buellton into bankruptcy reorganization on July 27, a dust-up with Silicon Valley Bank seems to have been at the core of his Chapter 11 filing.

For Patrick Nesbitt, a Santa Barbara resident with a taste for polo, the decision to place a portfolio of eight Embassy Suite hotels into bankruptcy reflects the struggles even savvy hoteliers faced during the real estate meltdown. Officials at Santa Monica-based Windsor Capital Group, where Nesbitt is CEO and chairman, say they filed for protection from creditors while they restructure debts, mainly a $187.5 million loan.

Looking at the record, it’s easy to conclude that Sanford is not a by-the-numbers kind of entrepreneur. He’s had plenty of ups and downs in his career, as a recent article in the Wine Spectator points out,  including parting ways with his eponymous Sanford Winery in 2005.

But he’s also the guy who figured out in the 1970s that the Santa Rita Hills in Santa Barbara County presented ideal soil and climate conditions for growing wine grapes. More recently, he led the industry’s move into organics and sustainable practices, far-sighted initiatives that have a real chance of becoming mainstream practices as green farming explodes.

Unfortunately, as Sanford said at a Central Coast MIT Enterprise Forum several years ago, the recession compressed the pricing power of many Central Coast wine operations. Prized $25 reds turned into $15 bottles — for a visionary who is not a heavy-duty numbers guy, that sort of price compression can have serious ramifications. One of the fallouts appears to have been Alma Rosa’s Chapter 11 filing.

For Nesbitt and Windsor Capital Group, which seems to have plenty of accounting horsepower,  the problem is, again, the new normal for pricing in the hotel industry. According to Nesbitt’s testimony in a bankruptcy filing, the Great Recession put downward pressure on pricing that squeezed margins and cut profits on the portfolio by almost half.

Now we return to Eugene Berman, and the strange events that occur when the economy shifts gears. Banks and other creditors are quick to pull the trigger if they sense the economy is weakening. So, at the start of  a recession, there are a lot of bankruptcy filings.

But those same lenders often are likely to extend credit if they can during the bottom of a business cycle, partly because they don’t want to turn a performing loan into a non-performing one and weaken an already-weakened balance sheet.

As an economy begins to turn around, lenders are  able to identify new opportunities to make money.

And because more of their loans are performing well, they can afford to play hardball with debtors who are having a tough time.

Nesbitt’s big hotel filing doesn’t necessarily mean that there are tough times ahead in the  hospitality business. And Richard Sanford’s Chapter 11 for Alma Rosa is viewed as a bit of an aberration in an industry where prices have stopped falling and are in some cases firming.

But as the economy continues to slowly improve, creditors will be more confident in demanding their pound of flesh. Highly-leveraged companies or enterprises that are having a tough time servicing their debts may be confronting some hard-nosed lenders.

For Sanford, 72, the next upturn in the economy may provide an opportunity to get back on top in the wine business.  But for somebody who’s starting over when many of his peers are retired, that’s a tough row to hoe.

• Contact Editor Henry Dubroff at hdubroff@pacbiztimes.com.