One of California’s oldest wineries has been forced into bankruptcy with nearly $40 million in debt, becoming the latest casualty of a brutal downturn hammering the state’s famed wine industry.

Gundlach Bundschu Winery survived nearly 170 years of calamities only to find itself overwhelmed by a toxic cocktail of crushing debt, falling tourism and shrinking demand for wine.

The sixth-generation family business, founded in San Francisco in 1858, survived Prohibition, an earthquake, wildfires, a vine-killing pest and the Covid pandemic.

But the winery has now filed for Chapter 11 bankruptcy protection after years of desperate attempts to shore up its finances failed.

The historic winery will remain open while it restructures and is seeking an outside investor – a move that will force the Bundschu family to surrender majority ownership.

CEO Jeff Bundschu described the moment as something his family had never experienced in the winery’s extraordinary history.

‘The company has endured more than a century-and-a-half of historic challenges and transformational change; however, this Chapter 11 filing is unprecedented for our family and our company,’ he wrote in a bankruptcy filing.

‘We enter this process with great humility and remorse for the burden the company’s financial distress places on our employees, vendors, lenders, customers and community.’

Katie and Jeff Bundschu, the owners of Gundlach Bundschu Winery revealed they have filed for Chapter 11 bankruptcy after 170 years of ownership

Gundlach Bundschu’s picturesque Sonoma vineyards form part of the historic California winery, which has filed for Chapter 11 bankruptcy after nearly 170 years in business

Court records put the company’s debt at roughly $39 million.

The collapse is another ominous sign for California’s celebrated wine business as producers struggle with declining consumption and fewer visitors to Wine Country.

It comes shortly after another California producer, McManis Family Vineyards, put its sprawling 3,500-acre operation in San Joaquin and Sacramento counties on the market for tens of millions of dollars amid the industry’s downturn.

Gundlach Bundschu’s financial problems can be traced in part to a badly timed expansion just as disaster was about to strike, reports the San Francisco Chronicle.

In February 2020, the company bought a 60-acre Glen Ellen estate for Abbot’s Passage, a separate wine brand founded by sixth-generation family member Katie Bundschu.

The purchase came immediately before Covid restrictions devastated their tasting-room and hospitality businesses.

Court documents describe debt from the acquisition as the ‘immediate cause’ of Gundlach Bundschu’s financial crisis.

‘The growth required to support that investment did not materialize,’ the filing states. ‘The industry’s subsequent contraction magnified those challenges.’

CEO Jeff Bundschu described the moment as something his family had never experienced in the winery’s extraordinary history

The 6th-generation winery produces around 42,000 cases of wine each year from its Sonoma operation, but has been battered by mounting debt and a wider downturn in the industry

Abbot’s Passage finally closed its winery and tasting room earlier this year.

Katie Bundschu said at the time that the family wanted to ‘return to our roots and focus on Gundlach Bundschu.’

Over the past 18 months, Gundlach Bundschu slashed costs and went through ‘multiple rounds of layoffs,’ according to court filings, cutting its workforce from 102 people to just 63.

The family also sold significant real estate holdings outside the company and pumped the proceeds back into the struggling winery.

The company has four loans with two major secured lenders, including approximately $20 million owed to agricultural asset manager Tiverton. That loan carries a huge 14.75 percent interest rate.

Another roughly $17 million is owed to agricultural lender American Ag Credit, while approximately 120 vendors and service providers are owed another $1.7 million in unsecured debts.

The family attempted to find a buyer or new investor and received three offers that its management considered viable.

But lenders rejected them because the offers came in ‘well below the secured debt amount,’ according to court filings.

Gundlach Bundschu will continue operating its winery and tasting room during the bankruptcy process as the family searches for an investor to help secure its future

Facing mounting pressure and unable to reach an agreement with its creditors, Gundlach Bundschu turned to Chapter 11.

Bundschu said the bankruptcy followed ‘years of operational restructuring, cost reductions, asset rationalization, family capital contributions’ and negotiations with lenders.

But ‘those efforts did not produce a consensual, out-of-court solution,’ he said.

Court filings say a prospective investor and operating partner has already been identified, although their identity has not been disclosed.

The family says the restructuring is intended to give the 168-year-old business a chance to survive while protecting jobs and relationships with customers, suppliers and the wider Sonoma community.

‘This is about creating a fair, court-supervised process that gives this historic business an opportunity to survive, preserve jobs, protect relationships with customers and vendors, and ensure the winery remains a meaningful part of the Sonoma Valley community,’ Bundschu said.

The vineyard has triumphed over adversity throughout its long history.

In the 1870s, phylloxera, an insect capable of destroying entire vineyards swept into California. Gundlach Bundschu became the first winery to switch to resistant native rootstock.

The San Francisco earthquake of 1906 was also catastrophic. The fire that followed destroyed the winery, three Bundschu family homes and one million gallons of wine.

The family then moved operations to its Sonoma Valley estate, Rhinefarm.

Prohibition in the 1920s and 30s dealt another devastating blow. The winery was forced to close but the family managed to retain 130 acres and its home.

The winery was finally resurrected in the early 1970s but disaster came once again with the devastating wildfires of 2017.

The family’s century-old home was destroyed. Katie Bundschu said her parents escaped ‘with just the clothes on their back’ and a handful of keepsakes.

The reconstructed home was later put up as collateral for the winery’s debt.

Today, Gundlach Bundschu owns approximately 100 acres, produces about 42,000 cases of wine annually and welcomes around 30,000 visitors.

At its height, more than 75,000 people visited each year.