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Diamond Foods Announces Temporary Loan Forbearance As Vultures Begin Circling

Tyler Durden's picture




 

Update: to the robot who bought at $28.29 on the WSJ headline seconds before close, congrats. Stock now down 4% from close.

That Diamond Foods is a dead man walking has been known for a while. Today we merely got the latest confirmation, after the company announced that it has reached a forbearance deal with its lender through June 18, in exchange for suspending dividends (duh) as well as a one time 25 bps loan fee, and an interest increase by 75 bps until June 18. At that point the company will still have to find a replacement facility, or do another forebearance deal which extracts even more equity value and hands it on a silver platter to secured creditors... kinda like Greece. Curiously, moments before close the market reacted like a stung HFT algo (see chart below) to a headline from the WSJ that "Diamond Foods in Talks With PE for Minority Investment." Sure it is - the problem is that any minority investment at this point will likely come below market, as this is not an M&A deal but a vulture equity financing. In fact, we would not be surprised if the lenders are contemplated a debt for equity exchange. However, for it to make sense, the stock would have to be far lower. Anyway, the stock reopens at 5:15pm. Stay tuned.

From DMND:

(Nasdaq:DMND) ("Diamond") today announced the Company has reached an agreement with its lenders to amend its credit agreement. Under the amended agreement ("amendment"), Diamond, working with its current bank group, will have continued access to its existing revolving credit facility through June 18, 2012 subject to Diamond's compliance with the terms and conditions of the amendment.   During this period, Diamond will continue to make scheduled term loan payments. Also, Diamond continues to make progress with its restatement and is pursuing actions with its financial advisor, Dean Bradley Osborne, to explore capital alternatives to strengthen the Company's balance sheet.

 

"I am pleased to have reached this agreement with our lender group," said Rick Wolford, Diamond's Interim President and Chief Executive Officer."This agreement enables Diamond to continue to work through our restatement process and with our financial advisor to develop capital alternatives to strengthen Diamond's balance sheet and reduce leverage. Also, during this period, Diamond will continue working to rebuild our walnut grower relationships, to take steps required to ensure Diamond's competitiveness and ongoing success in the walnut industry and, importantly, to continue to successfully support the growth of our snack brands."

 

The amendment requires Diamond to suspend dividend payments to stockholders. The interest rate on borrowings under the facility will increase by 75 basis points. In addition, Diamond has agreed to pay a one-time forbearance fee of 25 basis points to its lenders.

 

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Wed, 03/21/2012 - 17:04 | 2277807 LawsofPhysics
LawsofPhysics's picture

A failing company was paying dividends?  On a related note, go ask the people of Russia about food monopolies.

Wed, 03/21/2012 - 20:58 | 2278589 Buck Johnson
Buck Johnson's picture

Diamond foods is probably having major difficulty in the price of food stuff they need which has been rising because of inflation.  They may have tried to pass it off to customers (smaller packages, higher prices), but they may have been undercut by someone else and it's killing them.

Wed, 03/21/2012 - 17:06 | 2277813 HD
HD's picture

Well nuts to that...

Wed, 03/21/2012 - 17:06 | 2277815 fuu
fuu's picture

SVU is looking pretty sickly as well.

Wed, 03/21/2012 - 17:06 | 2277818 sessinpo
sessinpo's picture

They thought they had apple products. It's really nuts.

Wed, 03/21/2012 - 17:08 | 2277824 fonzannoon
fonzannoon's picture

why is it up in the after hours? whatever who cares....

Wed, 03/21/2012 - 17:35 | 2277914 Vegamma
Vegamma's picture

"Not anymore it's not."

Wed, 03/21/2012 - 17:09 | 2277825 Cdad
Cdad's picture

On my news log, the headline [written for the Algo crawlers, of course] was written as if there was a potential buyout on the table.  Hence, the dumb ass spike in price.  Nice market.

"Diamond in talks on private equity sale-report"

 

Wed, 03/21/2012 - 17:37 | 2277889 Cdad
Cdad's picture

This little headline trick, and the absolutely moronic AH spike in the price of DMND, is such a crystaline example of just how broken this whole market is, including the MSM that reports "financial news."  Equally, it sure shines a discerning light upon the "smart money" in our midst.

Add one more job saved/gained to next month's BLS report, as I suspect some computer genius somewhere is sitting in his office right now boxing up the contents of his desk.

Wed, 03/21/2012 - 17:45 | 2277937 Cdad
Cdad's picture

Watch now, as the computer genius attempts to extract himself from the closing ramp up.  Using tiny lots now, said genius was able to mark the price back up and extract 10k shares worth of his mistake @ $26 per share.  As for you Joe Six Packs out there, of course this is all completely normal.  We all know that renegotiating your debt and cutting your dividend is super bullish for a company's stock.

Someday, the criminal syndicate known as Wall Street and the SEC will actually want to try to restore market credibility.  However, today is not that day.

Wed, 03/21/2012 - 17:13 | 2277829 navy62802
navy62802's picture

Damn, look at that liquidity! A 10% spike! Certainly the product of normal market activity ...

Wed, 03/21/2012 - 17:13 | 2277836 adr
adr's picture

Haven't you heard, dead corporations are hot right now. All they need to do is announce they have a plan for a plan to grow profit and their stock should double in two weeks.

Wed, 03/21/2012 - 17:20 | 2277859 Zeff
Zeff's picture

Well someone did say that Diamonds aren't forever. True Story.

Wed, 03/21/2012 - 17:23 | 2277867 YC2
YC2's picture

Ouch, my nuts!

Wed, 03/21/2012 - 17:27 | 2277883 Temporalist
Temporalist's picture

That's why you should only put Uncle Jesse's Nuts in your mouth.

http://www.dailymail.co.uk/news/article-2040826/Uncle-Jesses-Nuts-Nunn-B...

Wed, 03/21/2012 - 17:29 | 2277891 Vegamma
Vegamma's picture

Is this algo a hedge fund that gets 2 and 20 to now get "pump-faked" into the air?

Wed, 03/21/2012 - 17:32 | 2277902 YesWeKahn
YesWeKahn's picture

Everything is bullish these days.

Wed, 03/21/2012 - 17:38 | 2277916 Vlad Tepid
Vlad Tepid's picture

Another huge Central Valley employer circling the drain.  Golden State my ass.

Wed, 03/21/2012 - 19:09 | 2278165 navy62802
navy62802's picture

Down only half a percent in after-hours trading. Apparently forbearance isn't too bearish for a corporation nowadays.

Wed, 03/21/2012 - 19:51 | 2278329 bobert727
bobert727's picture

Perhaps they could get a bailout from Timmy?

Wed, 03/21/2012 - 20:13 | 2278440 curbyourrisk
curbyourrisk's picture

Y aknow....A lot of companies actually went through this and were quite successful.  (Don't get me wrong I still the markets are WAY over valued.  Two companies that come to mind are GGC and DTG.  Go chaeck out their charts and BOTH are now take over targets.

Wed, 03/21/2012 - 20:30 | 2278499 yogibear
yogibear's picture

LOL, insider trading. The SEC would probably put the whistleblower in jail than the trader/trading firm. 

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