Oaktree Capital to invest in Diamond Foods

Private equity firm Oaktree Capital Management has agreed to invest $225m in Diamond Foods, a deal which could help the ailing food firm to rebuild its balance sheet, meet funding requirements and support future growth plans.

The investment will come as some relief to the snack maker, which is struggling with high debts after disclosure of improper accounting led to the suspension of two top executives and the termination of the planned acquisition of snack brand Pringles.

Diamond Foods said that the capital injection would enable it to amend its credit agreement with lenders and provide the company with cash for its funding requirements.

Diamond Foods president and CEO Brian Driscoll said that Oaktree’s expertise and resources will be invaluable as the company seeks to cement its market position in the walnut industry and plans to continue to grow its snack brands.

"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," Driscoll added.

The investment features $225m of newly-issued senior notes and warrants to buy approximately 4.4 million shares of Diamond common stock. The debt, which will mature in 2020, will bear an interest of 12% per year.

Oaktree will receive warrants at $10 per share which, if exercised, would give the investment firm a 16.4% ownership in Diamond Foods.

If Diamond Foods is successful in securing a certain minimum supply of walnuts from the 2012 crop and achieves specified profits in its nut business for the six months ending 31 January 2013, all the warrants will be cancelled.

Once the deal closes by the end of May, the equity firm can exchange $75m of the senior notes to convertible preferred shares, which would carry an initial conversion price of $20.75.

Earlier this year, the snack maker announced that it had to restate earnings for fiscal years 2010 and 2011 after the company’s audit committee revealed improperly accounted payments to walnut growers.

The accounting scandal led to the termination of an agreement to acquire snack brand Pringles from Procter & Gamble, a deal which would have made Diamond Foods the second largest snack company after PepsiCo’s Frito-Lay.