What killed Kentucky Owl’s deal? Judge says bourbon barrel market is ‘dismal’
AI-generated summary reviewed by our newsroom.
- Judge rejects Kentucky Owl deal, finds barrel market frozen and oversaturated.
- Experts say strategic buyers and new distilleries flood inventory, cutting prices.
- Large investors risk dumping 0–4 year barrels, intensifying glut and lowering values.
How bad is the current “dismal” bourbon barrel market? According to testimony in Kentucky Owl’s ongoing bankruptcy, it’s “frozen.”
Late last week, U.S. Bankruptcy Judge Scott W. Everett in Texas tossed Kentucky Owl and Stoli Group’s plan to pay off $78 million in bankruptcy debt to Fifth Third Bank with, among other things, 35,000 barrels of bourbon.
Fifth Third had objected to the proposal, which it said would leave them holding the bag for more than $60 million. The distiller was sent back to negotiations to devise a better plan for exiting bankruptcy.
Here’s what went into the judge’s decision to reject Kentucky Owl’s plan.
What whiskey experts said
Over several days of hearings in September, both sides presented expert testimony about the value of the whiskey and how it could be maximized.
In his Oct. 3 oral ruling, Judge Everett took great pains to not give away information that either party considered confidential.
But he pulled back the curtain enough to paint a vivid picture of the current financial environment of the bourbon industry.
The judge said he was persuaded by experts that attempting to sell that many barrels of Kentucky Owl bourbon stock over the next two years would not be feasible.
The judge said he considered the expert reports from Chuck Morton of Whiskey Advisors, Terry Thome of J.B. Thome & Co., Michael Howard, president of Stoli Group, and Donald Snyder of Time and Tasks.
The judge said that Snyder’s detailed testimony “more than any other witness’s really brought home to the court the dismal state of the barrel market.”
Among the insights: The current barrel market has a surplus of inventory that exceeds demand, making it “very challenging” to sell this inventory without “considerable discount,” according to Snyder.
Part of this is due to changing consumer preferences: People are just drinking less spirits, the judge said.
But, also, companies such as Diageo, Pernod Ricard and Constellation are no longer buying large quantities, because they have too much already.
The companies previously “would buy sourced spirits made by someone else, then use it for their own brands. Now those large strategic buyers have their own distilleries, and they are all actively selling their surplus,” Everett said, summarizing experts. “So instead of buying in a market with way too much inventory, they’re adding to it, and very few strategic buyers are buying any sort of volume because they have all the inventory they need.”
New distilleries have made it even harder. Staghorn (also known as Garrard County Distilling), Whiskey House, Eastern Light, Jackson Purchase, Log Still and others that have opened in the last five years can make 100,000 barrels a year, “which is adding more inventory than the market actually needs ... creating a race to the bottom,” Everett said.
Some of the newcomers, such as Garrard County and Luca Mariano are paying the price: Garrard County is in receivership, and Luca Mariano is in bankruptcy, the judge noted.
The experts all agree, the judge said, that the market for 0- to 3-year-old bourbon “is completely frozen.”
“Unfortunately, 17,000 barrels in the Kentucky Owl inventory are under 4 years old,” the judge said. “According to Mr. Snyder, it will be ‘darn near impossible’ to sell that inventory in any sort of reasonable time. Instead of offering to fill new barrels for $950 like a few years ago, they’re trying to fill at $550 a barrel just to keep the lights on.”
Glut of bourbon barrels on the market
The market is so “oversaturated.,” Judge Everett said, again quoting Snyder, that one online barrel marketplace called Barrel Hub “has 175,000 barrels for sale.” But Snyder testified that only 2,300 barrels have sold in 83 transactions over the last two years through the site.
“Moving 35,000 barrels of whiskey into an oversaturated market over the next two years would be very very very difficult,” the judge quoted Snyder as saying. The only transactions moving are “micro transactions, meaning small quantities for small craft brands.”
Storage costs also are rising, as bonded warehouse space becomes more limited due to “the glut of barrels,” Everett said.
And things may be about to get much worse: “In terms of the market, a lot of investors are sitting on 0- to 4-year-old barrels, and at some point they’re going to try to unload those barrels, making the market over the next two years very speculative,” Snyder told the judge, “and if risky investment funds that bought new barrels filled with the hope to flip them get nervous and start unloading, the market will get even worse.”
Investment funds potentially on the verge of dumping even more barrels will only increase the market uncertainty, the judge said, and contribute to the devaluation of the Kentucky Owl stock that Fifth Third would be trying to sell.
Snyder told the judge it’s already happening: One investment firm on the West Coast called Washtucky has 70,000 barrels they’re trying to unload, he testified.
Washtucky Holdings invests in large quantities of bourbon. In 2023, the investment firm Washtucky sued Wilderness Trail Distillery after it was purchased by Campari, alleging that the sale blocked 12,500 barrels that were contracted to them. The suit was dismissed at Washtucky’s request one month later.
