Diamond Foods, Inc. andOaktree Capital Management, L.P.announced that Diamond and Oaktree have entered into definitive agreements to recapitalize Diamond's balance sheet with an investment by Oaktree of $225 million in Diamond. Concurrent with the closing of this investment, Diamond will amend its credit agreement with its existing lenders. The recapitalization will result in a capital structure that supports the company's long term strategy as well as the execution of its current business plan.
The recapitalization will allow Diamond to further strengthen the company's leadership position in the walnut industry, continue the growth of its snack business and reduce the amount of existing bank debt. The transactions are expected to close by the end ofMay 2012.
"Oaktree has an exceptional track record of supporting the growth of leading companies in the consumer sector," said Brian Driscoll, Diamond Foods' president and CEO in a prepared statement. "Their expertise and resources will be invaluable as we solidify our market position in the walnut industry and seek to continue to grow our snack brands. In connection with Diamond's thorough review of capital alternatives, the company received interest from a number of top tier investment firms. We are very pleased with our decision to partner with Oaktree, an experienced investor with an outstanding reputation. Looking forward, our balance sheet strength will provide a solid foundation from which to build as we position Diamond for the opportunities ahead that can deliver value to our shareholders, our growers and our customers."
"We are pleased to have the opportunity to partner with Diamond and provide additional resources and capabilities to drive strong financial and operating performance and position the company for long-term success," said Matthew Wilson, managing director, Oaktree Capital Management. "We recognize the value of Diamond's high quality brands and their leadership position in the walnut industry. We look forward to working with Diamond's management team to continue building upon the momentum of recent months."
The investment of new capital by Oaktree, in conjunction with the amended bank credit facility, will provide Diamond with sufficient liquidity to meet its anticipated near-term and long-term funding needs. The Oaktree investment initially consists of$225 million of newly-issued senior notes and warrants to purchase approximately 4.4 million shares of Diamond common stock. The senior notes will mature in 2020 and will bear interest at 12 percent per year that may be paid-in-kind at Diamond's option for the first two years. Oaktree's warrants will be exercisable at $10 per share, and would constitute a fully diluted ownership level of approximately 16.4 percent of the company.
The agreements provide that if Diamond secures a specified minimum supply of walnuts from the 2012 crop and achieves profitability targets for its nut businesses for the 6-month period ending Jan. 31, 2013, all of the warrants will be cancelled and Oaktree may exchange $75 million of the senior notes for convertible preferred stock of Diamond. The convertible preferred stock would have an initial conversion price of$20.75, which represents a 3.5 percent discount to the closing price on April 25, 2012, the date that the company entered into its commitment with Oaktree. The convertible preferred stock would pay a 10 percent dividend that would be paid in-kind for the first two years.
"We are pleased with the progress across our walnut initiatives and with the efforts over the last three months to restore and strengthen the company's relationships with its growers at a time of record walnut prices," added Driscoll. "These extensive efforts, along with the goal of providing competitive prices and terms for our growers, are focused on reestablishing the success of this business and expanding our leadership position in the walnut industry."
The amendment to Diamond's senior secured credit facility with its lenders includes a lower level of total bank debt, initially at$475 million, along with substantial covenant relief until Oct. 31, 2013.
Upon the closing of the transaction, Matthew Wilson, a managing director of Oaktree, and Dean Hollis, a senior advisor to Oaktree and former president and COO of ConAgra Foods, will join Diamond's board of directors.
Diamond Foods was advised in this transaction by Dean Bradley Osborne and Fenwick & West LLP and Oaktree was advised by Latham & Watkins LLP. More information about this transaction can be found on the company's Website.